When the need to borrow money arises, there are many sources to
which you can turn to .Whether you're starting a business or
expanding one, sufficient ready capital is essential. OR When ever
due to some reason businesses fail inadequate or ill-timed,
financing is a close second. Generally you must have a detailed
business plan and year's forecast before financing loan
Ensure you avoid common mistakes like securing the wrong type of
, miscalculating the amount required, or
underestimating the cost of borrowing money.
There are many sources for financing loan
: banks, savings
and loans, commercial finance companies. State and local
governments have developed many programs in recent years to
encourage the growth of small businesses in recognition of their
positive effects on the economy.
The most common source of professional equity funding comes from
venture capitalists. These are institutional risk takers and may
be groups of wealthy individuals, government assisted sources, or
major financial institutions.
Traditionally, banks have been the major source of financing
. Their principal role has been as a short-term lender
offering demand loans, seasonal lines of credit, and
single-purpose loans for machinery and equipment. Even for other
substantial purchases such as homes or automobiles, you will most
likely turn to a bank to work out arrangements for a long term
There are two types of financing loan
: equity and debt
When looking for money for a business purpose, you must consider
your company's debt-to-equity ratio - the relation between dollars
you've borrowed and dollars you've invested in your business.
Lenders commonly require the borrower's personal guarantees in
addition to equity considerations, in case of default. Thus more
money you invest in your business, easier it is to attract
• If your firm has a high ratio of equity to debt, you should
probably seek debt financing.
• If your company has a high proportion of debt to equity, you
should increase your ownership capital (equity investment) for
When you are going for financing loan
, you should be
certain to understand the terms of the agreement, in terms of time
period of a loan, its interest rate and the terms (if any) that
apply if you are late in repaying the loan.