FINANCING A NEW BUSINESS

A challenge that is most common to start-up businesses is the problem of finance. Although it is very important that a person that is venturing into a business should have a sound knowledge of the details of the business, if he doesn't have a good financial backing, he may likely not be able to achieve efficiently, his goals.

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This is why, it is no surprise that some businesses that started up with very good plans sometimes fail after some months or years due to lack of proper financial backing. Realizing that finance is very vital to the success of a business, it is important that as we plan for the things we can do to make the business prosperous, we should also plan for finance. In this article, I will be showing us few ways in which a business owner or an enterprenuer can get funds for his business venture.

1. Support from friends and family

A source of funds for entrepreneurs is support from friends and families. This financial support is always based on the relationship you have built with them over the years, and for that, they have believed in you enough to support your vision with financial backing.

So, we can see that the major way to obtain this support is by developing trust. This trust is based on the fact they already know you to be financially prudent, and incase they are not gifting you the money, they can vouch for you that you can return it. Let's say you have a cousin somewhere who you haven't spoken to in ages, you can't just call him out of the blues seeking for financial help. But if it is one who you have built trust with over the years, both asking for help as well as receiving help is easier.

2. Through partnerships

If the vision of the project is too broad and maybe a little bit difficult to finance by an individual, it is best to look for someone who you can partner with. The partnership may be that all of you will contribute equal or certain percentage of the capital required for the business, or one brings the capital while the other runs the business. Which ever way that is preferable, it has a factor in determining how much a person will receive when the profit is shared.

One good thing about partnership is that, unlike borrowed funds, where you bear all the risk alone, in partnership, the risk of the business is shared amongst the investors. So, all is held accountable if the business fails. There are majorly two types of partnership; the private partnership is the one in which the business owner is free to choose those he wants to partner with, while the public partnership is one in which the partnership is opened to the general public e.g shares.

3. Loans

Another source of business fund for an entrepreneur is loan. Loan comes with terms and conditions, and it is mostly paid back at a stipulated time with interest. If you get a loan from a microfinance bank, or any of the Small and medium-sized enterprises, you will pay back at less interest rate, than when you borrow from commerical banks as well as other loaning platforms like money lenders.

Of all sources of finance for a business, the most risky is Loan. As, the business may not be so profitable at first to pay off the loan you borrowed, or probably things may not turn out as expected. Regardless, be sure that you are willing to take the risk before you seek for loan.

4. Personal funds:

Personal funding is the best form of financial support that an entrepreneur can get for his business. There are several reasons why this is so; one of them is that personal fundings are always very handy. Unlike other forms of funding where you may have to wait for it to be processed or available, you can have access to your own personal fund at anytime.

We all know how important time matters in business. For instance, if you find a business opportunity that is very profitable and you are given a time limit to make an investment, it may take sometime for you to borrow money or for your friends to rally around to get enough money for you. But if you had your own money on ground, then you are less likely to lose that opportunity.

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Another reason why person finance is important is that you are more at peace while investing than with other sources of business fund. It is also less risky. Unlike other sources of fund where you may need to pay back with interest, in personal fund you don't need to do that, rather the interest you make from your personal funds can be reinvested into your business. A personal funds can be one that you inherited or you acquired.

Note: It is important that before a person goes into a business, he should have some money saved, as it is too risky to venture in a business that will be completely funded by other finance sources.

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