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Raising Money Or Funds For Your Business < Business Articles By Mast Business Directory

Raising funds for business is always a necessity and funds are always welcome irrespective of their respective sources. Whatever funds that are raised for a business are categorized into either charity or they are provided in the form of a credit. Be it a new business or starting a new project by a well-established company, funds are always short. You need to develop good business relations with different business groups to raise funds. It’s always risky to get investments from others owing to the risk that the investment is put into. A bad news about a company’s reputation circulating in the share market can be a disaster and investments fly away like ash. Raising money in business is a tactic that should be implemented with care. This report discusses various aspects of raising funds for business.

Initial financing

It is the funds to be acquired before you start the business. It becomes very difficult to get investors to raise funds because you do not have a market value and no one tends to trust your business judgments. You should have fixed assets like land, house or liquid assets which you can mortgage to raise funds. You can also borrow money against your insurance policies, from family members, from friends who are willing to invest money etc. Keep yourself away from getting cheated. Read the loan documents carefully before you proceed to resort to loan from a bank or financial institution.

Lease your assets

Perhaps you might have a house which you are not very confident against mortgaging. You can always lease. When anything goes out as a lease, you acquire security deposit against it, which is quite a sum. Also, the monthly/fortnightly rent you get is a steady flow of income for you.

Financial Institutions built for community development.

Institutions like these cater economic development. Some individuals have bad credit history and hence cannot resort to loans from banks. CDFI’s come to their rescue because they lend out loans that are termed as “unbankable” by the industry standards. It is easy to obtain loans from these institutions rather than commercial banks in the market. But it is quite challenging owing to the scrutiny that these institutions put a businessman into.

Concept of microloans

Microloans are very small amounts of loans that small to medium business can avail from. It’s a very successful program and support small-scale industries to establish and grow. Microloans are lent out by private and non-profit organizations.

Loans based on assets

Commercial finance companies and banks have large sums of money which they look forward to invest and grow rather than having it stale. Hence they are usually willing to give loans against a company’s accounts that are receivable and inventories. This one is ideal for companies that are confident about their moves, have projected good returns from their investments. Loans on assets are preferred to be given to large companies borrowing huge amounts of money. This is because a cost is involved in monitoring the assets of the company which is same for small as well as large sums of money. If the lender is unable to pay back the loan, a heavy interest is levied which makes it way ultimately to the takeover of the company.

Term loans from banks

These are basic loans that are available commercially. The properties of such bank loans include interest rates that are mostly compounded annually, repayments that are scheduled typically monthly or quarterly. These loans have maturity dates depending upon which these are classified as intermediate-term loans and long-term loans. These demand substantial down payments to get rid of large monthly and to reduce loan costs in totality. Loan approval usually takes time and depends upon the risk that the bank is willing to take.

Guarantees for private loans

Banks demand guarantees before approving the loans. A payment guarantee should be in favor of the company enabling it to convince the bank for a loan. A guarantee is usually a wealthy investor who has a good market reputation. It is best for the guarantee to have experience. The older the guarantee, the easier it is to favor the companies to get loans.

Royalty financing

If a company is confident that its products/services are capable of deriving sales, then royalty financing is the best option. Royalty financing is an advance taken against the anticipation of the projected sales of a company. A certain portion of income achieved from actual sales is diverted towards pay back of the advance borrowed in the past. This option is attractive for people who want to invest money, but not in private companies. It is easy to achieve owing to the large variety of investors that it appeals.

Venture capital from the Government bodies

Some entrepreneurs are denied business opportunities because they have some disadvantages economically or socially. Small business administrations are licensed to provide financial aid to these companies. Money borrowed from Small business investment companies is particularly more risk-tolerant than the venture funds. These bodies help the companies that are not allowed to deal ventures like it usually happens. A company which has a regular flow of income through sales of it goods and services are capable of repaying the loan and hence can easily avail these facilities from Government bodies. Such type of financing is quite in abundance with large capital and in large numbers under management. Owing to the credit history that is analyzed before such loan is let out, acquisition of such type of loans is challenging but attainable.

Angel investors

Businesses which work with angel investors derive their capital from mere individuals. It is popularly termed as “share market” trading. Individuals who have money and want to invest look for companies which have high growth prospects, have a good reputation in the market or rather the leaders in the industries that they deal with. Companies which acquire their capital through angel investors should be willing to provide ownership to the investors and exercise control to its investors. This is termed as a “share” in the company. But the disadvantage is that a company who is already doing well in the market will attract major chuck of the investments rather than the needy ones which require capital. Angel investors are present in majority surrounding the urban areas rather than rural. This type of investment is easy to achieve but difficult to deal with. This is because angels demand a management fee and different investors have different terms which a company must agree upon.

Employee’s tax deferred savings account

An account established to make payments to the employees for their services which is to be paid in every pay-cycle can be viewed upon as a major capital for the company. The major advantage lies in the company being able to retain such type of accounts even after an employee terminates his services within the company. A major risk is involved in putting those retirement accounts for investments because it is company who is just safeguarding such accounts and ultimately the funds belong to its employees. The risk involved here is moderately challenging after the company resolves the legal and the accounting problems that come along with such investments. The fee involved is also enormous owing to a large number of professionals required to authorize such transactions.

Direct Public Offerings (DPOs)

DPOs are nothing but sale of shares offered by the companies directly to the investors who are willing to buy them. For a well-established company, DPO is not a big thing due to its reputation and strong affinity towards the public in the market and annual reports’ release via which the investors keep track of company’s performance and profit/loss ratio that the company is going through. In a DPO, the investors are termed as the shareholders. DPOs offer individuals to make a high profit margin by investing in emerging companies. This kind of investments cannot be subjected towards research and development because it takes a long time to generate substantial returns. Investors are generally seen to be very impatient and expect their money to grow within a short span of time via such DPOs. The only disadvantage lies in the company compelled to transfer a part of the ownership to the public who invest in such DPOs.

Initial public offerings (IPOs)

Companies put their equities for sale via IPOs. This is done generally in the form of stock or shares with an investment banking firm. For an IPO investment, small and emerging companies should put forward their business plans to demonstrate their capabilities to transform into large enterprises. These kinds of investments are best put to use into the marketing or manufacturing sectors. IPOs cause huge expense to the companies who offer them. IPOs cause companies to lose out on a high chunk of their equities. Such equity costs are recorded to be generally up to 25 percent. Perhaps such acquisitions are unarguably difficult because of the challenges faced in such transactions. Even the economic periods must be robust. Given that economic periods are ideally robust and large numbers of companies go public each year, there are cases where attempts made by significant number of companies have been unfruitful subject to major losses they have faced in such attempts.

In this article, we have thus explored various aspects of raising funds for a business. We have gone through various methods the companies can resort to for acquiring investments from different sources. We have learned the risks involved and cost to company aspects to rise such funding. Raising funds is very difficult for a business in spite of the diversified sources from which it can borrow. This is because every borrowing has its own nature of terms and conditions. A wise decision after evaluating all possible options without hastily borrowing from any random available source could be helpful.

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