Getting The Best Financier
It is common for people as well as businesses to need extra funding for carrying out various activities. You can get loans or financial aid from family, friends, potential investors and banks. Choosing the right source of business finance is a difficult and very engaging activity. It is important to weigh the costs and benefits before settling on any institution to offer you funding. This article seeks to enlighten us on things we should take into consideration before settling on a source for your business finance.
The first factor you should consider is the risk involved. At times things may happen that may make us unable to repay our debts on time. If we choose to borrow from family and friends, we should weigh the repercussions of not being able to pay the loan on time on our relationships. If you are a new business owner, it may be a bit difficult to acquire funding from banks.If your business is just starting or has had credit difficulties before, financiers will often charge high returns on the investment they make.You should take into account what borrowing from these financiers will do to your expected cash flow. You ought to ensure that your debts do not outweigh your equity or else your business will be in trouble.
Control should also be put into consideration when choosing the source of your finance. Banks will hand back full control of your business once you are done repaying a loan. Investors on the other hand will continue having some control over your business until they are bought out. If you would like to continue being in absolute control of your business once you are done repaying your source of finance, it is better to acquire loans.
The cost of finance should also be considered. It is important that you ensure the cost of finance is minimized when choosing your source of funding.Interest rates, broker’s fees and origination fees are costs you stand to incur when borrowing from banks and other money lending institutions. If you decide to sell some of your shares, you should also consider payment of dividends to your investors.Go for a source of funding that costs less and brings in more.
Whether we will need short term or long term financial help should also be put into consideration. Long term loans are given for non-current assets and are repaid over long periods of time unlike short term loans that require payment in a matter of months. It is of very high importance that you choose a finance plan that works best for both you and your business.