Sources and Types of Financing Methods for Your Startup Business
Some of the people have no idea of any Start-up Business while they have capital. On the other hand, the case is opposite. Some people have best Start-up Business idea but they have no proper capital to get start.
Your financing needs will indicate how much amount is needed for your Start-up Business. Sometimes Start-up Business is capital intensive like processing business which needs a large amount of money. On the other hand, sometimes Start-up Business requires less amount of capital like retail business.
Debt and Equity financing are the two major sources of financing.
It is to exchange a part of business ownership for a financial investment in any business. This equity investment results in ownership stake. This is permanent investment in a company and the investor has a share in the profits of the company. The amount of investment is not repaid by the company to the investor at a later date.
The equity stake can be in the form of partnership, limited liability Company, or in the form of preferred or common stock in a corporation. Common stock holders have voting right while preferred stock holders have no.
In case the company gets default or bankrupted then common stock holders have last in line for the assets of the company. Preferred stocks have a fixed percentage of dividends while common stock holders have no predetermined percentage of dividends.
Following is a list of different types of equity financing for Start-up Business
Home equity loans
Life insurance policies
Friends and Relatives
Initial Public Offerings
Debt financing means to borrow funds from lenders with an agreement to repay them the principal amount plus interest payments at a specified future time. The reward for lenders is the interest charges. Debt financing can be secured and unsecured. It can be secured when the borrower keeps collateral with lender.
It can be unsecured when no collateral is kept. The debt financing can of short and long term in terms of repayment schedules. Short term is used to finance current activities and long term is used to finance fixed assets like equipment or buildings.
Following is a list of different types of debt financing Start-up Business.
Commercial Finance Companies
Friends and Relatives
You can also lease assets for use for your Start-up Business. Terms and conditions are specified for rental use of the tangible resource in the agreement by both parties. Lease has annual payments normally.
When the lease period ends then the asset is returned to the leasing company. Lease can also be renewed or you have also an option to purchase the asset.
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