Understand basic financial terms
Financing options are important determinants whether a product reaches the market, or whether the existing business can survive. Financing options are an important part of becoming entrepreneurs and business owners, and the ability to raise cash when you do not have or limited history take skills and creativity. There are a number of sources of financing. Alternative conformity depends on what stage you are, and will change when the company matures from stage to stage. Describe the following most typical forms available.
Yourself, family and friends
The most obvious and general start is for people to finance themselves. That means they drool their savings or they use personal debt such as credit cards, credit lines or mortgages equity to finance their business. Families and friends are often used as a source of financing. Even though they are not always in a position to evaluate business, family, and friends who have relationships and old experiences with entrepreneurs and knowledgeable about their reliability and abilities.
Strategic partners can not only provide financing sources, but often they can provide areas of expertise that are not carried by employers do not bring to the table, such as operational or marketing skills. Naturally, pair traps are you do not maintain full control over the company and that sometimes there are interference between partners. So, it’s important that you do your homework and choose your partner carefully.
Angles tend to be a freelance advice interested in lending smaller amounts of money, say between $ 50,000 – $ 500,000. They can often provide seed capital needed to develop ideas to get to the point where a company can obtain formal financing. Investor angels will also invest in developing companies that may have a strong income base, but not enough to be established to get banks or other financing. Another benefit of angels is that they can bring a lot of industry experience and contact to the table.
When the company approaches venture capitalists, they are generally developed to the point where venture capitalists can add value. Venture capitalists will generally sit on the board of directors, provide expertise and provide funds based on the achievement of milestones. They are generally interested in companies that can produce rapid growth – and return – for several short years; Horizon your time is generally 3-8 years.
One of the biggest sources of short financing, trade credit occurs every time you buy from a supplier but does not need to pay merchandise for 30 days (or whatever the provisions). Trade credits can be expensive if you disconnect above, but new companies may not have many choices.
Factoring is also a popular source of financing for growing companies. When you produce accounts receivable, you can sell it to a factor that will then collect accounts for you. Usually, you will get between 75% -90% in advance for receivables and the rest when these factors collect, fewer costs.
Asset-based lenders will lend to businesses that lack enough cash flow to support unsecured financing, but have sufficient assets that can function as collateral. Usually, assets are accounts receivable and inventory, but can be similar equipment or other assets. Lenders depend on assets to pay loans, not the company’s cash flow. A fast-growing company that cannot obtain sufficient financing from financial institutions will be a typical client of asset-based lenders.
Financing Mezzanine is a subordinated debt, a kind of hybrid between senior debt and equity. Because Mezzanine financing is usually at high risk, it can be expensive. Typical target companies are generally in business for several years and have a set income and posit base