If you have this great idea you think has the ability to make money but also make you a successful business person then why not make it a reality. Well one of the biggest problems with making it a reality is usually financial backing. Not everyone has the finance available there and then to make their dream a reality and many give up on their dream because they think they have no chance of getting the finance they require. If you’re thinking that’s me then I think you need to continue reading this article!
You will need finance for purchasing equipment whatever it may be from computers to ovens, a place of work if necessary if you intend to employ staff you will need an office, factory or warehouse to hold stock if there is any. Once your business is up and running you will need money to pay staff, pay bills and keep the business running as well as promoting the business to your targeted audience.
Finding the finance you require can be one of the most difficult aspects of setting your business up but it can be made simpler if you plan your new business set-up and future using a Business Plan. A business plan will allow you to record all your ideas; you plan for the future all the goals you intend to set yourself and your business. The business plan will set out your businesses objectives clearly and thoroughly, allowing you to go and back and remember them as well as showing potential finance partners to understand fully what your business is about and how you want it to succeed.
The financial options available to new businesses are that of:
• Family and Friends
• Your Savings
• Credit Cards
• Bank Loans
• Business Angels
• Venture Capitalists
• Government Support and Grants
If you don’t have savings like many people don’t and your family and friends can’t help, you have the option of using your credit card but this can be dangerous and most credit cards have a limit of £5,000.
Bank loans can offer a certain amount of money as well as using your account overdraft if available but you have to remember you will pay interest back and if you can’t show the bank a credible business plan, that you’re good at working in business and have evidence for this, that you yourself can invest some money into the business as well as offering security on the money lent to you using your personal assets as a guarantee.
If the bank turns you down, you may have the option of a loan for small businesses called ‘Small Firms Loan Guarantee (SFLG)’. This provides lenders with a government guarantee against default in some circumstances. This is ventured by the Department for Business, the Enterprise and Regulatory Reform (BERR) and other lenders.
Business Angels and Venture Capitalists are similar in many ways they both offer finance to new or struggling businesses which they think will succeed with their financial help, they both take a share of the business and they usually offer around £10,000 to a business. This figure can be a lot more if angels or capitalists group together and become a network or syndicate. Business Angels usually give you the finance you require and let you run the business on a day-to-day basis and watch their money financial investment increase gradually whereas Venture Capitalists usually like to take an active role in decisions being made and like to become a director or part of management of the business.
Whatever finance you require to set your business up, make sure you have a well planned and thorough business plan in hand when you make any financial decisions as well as approaching potential financial investors from family to friends to the bank to business angels.
Jene Pedder is the Webmaster of Angel Start-Ups who specialise in offering help finding appropriate Business Finance.
Monday, 7 January 2008
Thursday, 3 January 2008
Who are Venture Capitalists?
Venture Capitalists are wealthy private investors who can help finance your business either it being a business in trouble financially or a new business venture.
There is usually a five year lock up on Venture Capital investments, this means the Venture Capitalist or the business they are helping to fund cannot get out of the deal until the five years is up, sometimes this may be longer depending on the agreed business plan. They also charge management fees and incentive fees as well as taking a good sized share of your business. Unlike Business Angels, Venture Capitalists like to have a director or management role within the company to discuss the running of the business as well as keeping a close eye on their investment making sure the business succeeds. But there are a few Venture Capitalists who like to give the company the finance they require then take a back seat and let the company who know the trade etc. and let them run the business on a day to day basis.
Finding the right Venture Capitalist for you may be a scary prospect but there many Venture Capitalist firms now available which have Venture Capitalists waiting to invest in a new and upcoming business with good prospects. Making a proposition to a Venture Capitalist can be a scary thought, you need to remember they will want to know exactly what your plans are for coming years, the market you will be promoting your product, service in as well who your target audience are for this as well as how much it will cost to make if necessary and the cost you will sell it for, showing the profit you will make on each product, item or service. One thing to remember is that Venture Capitalists don’t care about the dreams you have about this venture, all they want is a good return on their investment in your business.
Before going to see a possible Venture Capitalist the best thing to do is to get advice from other business people in the same area you want to go into to get their advice on your product and or service and their honest opinion of the idea.
You will need a well detailed business plan when you meet up with the Venture Capitalist and if you are turned away by them don’t give up keep trying, if show people you’re serious about your venture and wont fall at the first hurdle your more likely to win people over with their own weaknesses.
Some points to consider are:
• Put all your thoughts on your new venture on paper, brainstorm everything
• Research your proposed market or industry
• Get someone to argue against you to see if you have a water tight solution
• If you have little knowledge on a certain area ask for help from people who know
• Create a budget, showing every detail you can think of
• Read thoroughly your business plan to ensure there’s no errors
• Know who your competitors are
• Present yourself well – the more presentable you are the more likely you are to be respected by the Venture Capitalist make a good impression
• Make sure you know your speech, your business plan back to front so you come across confident as you only have one chance
Jene Pedder is the Webmaster of Angelstartups who specialise in helping you find a suitable Venture Capitalist for your business venture.
There is usually a five year lock up on Venture Capital investments, this means the Venture Capitalist or the business they are helping to fund cannot get out of the deal until the five years is up, sometimes this may be longer depending on the agreed business plan. They also charge management fees and incentive fees as well as taking a good sized share of your business. Unlike Business Angels, Venture Capitalists like to have a director or management role within the company to discuss the running of the business as well as keeping a close eye on their investment making sure the business succeeds. But there are a few Venture Capitalists who like to give the company the finance they require then take a back seat and let the company who know the trade etc. and let them run the business on a day to day basis.
Finding the right Venture Capitalist for you may be a scary prospect but there many Venture Capitalist firms now available which have Venture Capitalists waiting to invest in a new and upcoming business with good prospects. Making a proposition to a Venture Capitalist can be a scary thought, you need to remember they will want to know exactly what your plans are for coming years, the market you will be promoting your product, service in as well who your target audience are for this as well as how much it will cost to make if necessary and the cost you will sell it for, showing the profit you will make on each product, item or service. One thing to remember is that Venture Capitalists don’t care about the dreams you have about this venture, all they want is a good return on their investment in your business.
Before going to see a possible Venture Capitalist the best thing to do is to get advice from other business people in the same area you want to go into to get their advice on your product and or service and their honest opinion of the idea.
You will need a well detailed business plan when you meet up with the Venture Capitalist and if you are turned away by them don’t give up keep trying, if show people you’re serious about your venture and wont fall at the first hurdle your more likely to win people over with their own weaknesses.
Some points to consider are:
• Put all your thoughts on your new venture on paper, brainstorm everything
• Research your proposed market or industry
• Get someone to argue against you to see if you have a water tight solution
• If you have little knowledge on a certain area ask for help from people who know
• Create a budget, showing every detail you can think of
• Read thoroughly your business plan to ensure there’s no errors
• Know who your competitors are
• Present yourself well – the more presentable you are the more likely you are to be respected by the Venture Capitalist make a good impression
• Make sure you know your speech, your business plan back to front so you come across confident as you only have one chance
Jene Pedder is the Webmaster of Angelstartups who specialise in helping you find a suitable Venture Capitalist for your business venture.
Monday, 17 December 2007
Who are Business Angels?
Business Angels are people who like to invest in struggling businesses which they think have a good chance of making it in the business with some financial backing as well as businesses that are just starting up. These businesses will need help financially to start-up with the purchase of stock and equipment.
Business Angels usually come from an entrepreneurial background and therefore know the troubles you may go through and that finance is one of the most important factors in any start-up business and especially in a business that is struggling financially. A Business Angel will usually only offer financial backing if they think your business stands a good chance of succeeding.
The amount of finance they offer you depends on the business plan you put forward. They will need to see every little detail of your business from who your suppliers are and how much they charge to how much you offer a product or service at. They will want to see all your ingoing’s and outgoings for the last year if your business is struggling. If it’s a new business venture you’re trying to gain finance for, you will need a good plan showing the revenue of the business over the next few years as you see it.
A Business Angel can offer from £10,000 to £75,000 to help regenerate your business or get your business off the ground. Some Business Angels may be willing to work as an Angel Syndicate and can then offer from £100,000 to £250,000. The average amount a Business Angels invests in a company is around £75,000. All Business Angels want a good return on their investment and this is often done by their high percentage share of your business which they get back at a much higher price in a few years.
There is a difference between Business Angels and Venture Capitalists this is that Business Angels take less control of your business they don’t usually want the bother of a director’s or management job and would rather invest in your business and give you some advice if you need it. Due to this, their investment decisions are usually a lot quicker than Venture Capitalists.
Whoever you get investment from whether it be a bank, a loan company or a business angel you will need a well planned and thorough business plan. Your business plan will show what your intended goals are and any ideas you have for the future as well as the planned income of the business for the first few years. Every business plan should be regularly updated to keep up to date any changes with the business internally or externally and also any new pointers you’ve put in place.
Not only will you use your business plan to help secure business finance from a Business Angels but also it will help you run your business more effectively and efficiently. So why wait if you’re looking to raise finance for your start-up or struggling business contact a Business Angel today for financial help and advice.
Jene Pedder is the Webmaster of Angelstartups who are here to help you find a Business Angel.
Business Angels usually come from an entrepreneurial background and therefore know the troubles you may go through and that finance is one of the most important factors in any start-up business and especially in a business that is struggling financially. A Business Angel will usually only offer financial backing if they think your business stands a good chance of succeeding.
The amount of finance they offer you depends on the business plan you put forward. They will need to see every little detail of your business from who your suppliers are and how much they charge to how much you offer a product or service at. They will want to see all your ingoing’s and outgoings for the last year if your business is struggling. If it’s a new business venture you’re trying to gain finance for, you will need a good plan showing the revenue of the business over the next few years as you see it.
A Business Angel can offer from £10,000 to £75,000 to help regenerate your business or get your business off the ground. Some Business Angels may be willing to work as an Angel Syndicate and can then offer from £100,000 to £250,000. The average amount a Business Angels invests in a company is around £75,000. All Business Angels want a good return on their investment and this is often done by their high percentage share of your business which they get back at a much higher price in a few years.
There is a difference between Business Angels and Venture Capitalists this is that Business Angels take less control of your business they don’t usually want the bother of a director’s or management job and would rather invest in your business and give you some advice if you need it. Due to this, their investment decisions are usually a lot quicker than Venture Capitalists.
Whoever you get investment from whether it be a bank, a loan company or a business angel you will need a well planned and thorough business plan. Your business plan will show what your intended goals are and any ideas you have for the future as well as the planned income of the business for the first few years. Every business plan should be regularly updated to keep up to date any changes with the business internally or externally and also any new pointers you’ve put in place.
Not only will you use your business plan to help secure business finance from a Business Angels but also it will help you run your business more effectively and efficiently. So why wait if you’re looking to raise finance for your start-up or struggling business contact a Business Angel today for financial help and advice.
Jene Pedder is the Webmaster of Angelstartups who are here to help you find a Business Angel.
Business Angels Vs Venture Capitalists
Have you these amazing ideas which you’re sure you can put into practise and make a living out of your ideas. If so you’re more than likely looking into financial help to put these ideas into practise. You may think bank loans, credit cards and loans off family and friends are the only options but Business Angels and Venture Capitalists are also a good option to consider.
Business Angels what are they you may ask, they often work as individuals who themselves are entrepreneurs and have made their dream come true in whatever business sector they chose. They have now have the experience and financial backing to help other entrepreneurs to start their own business just like themselves years ago.
Venture Capitalists are very similar to Business Angels they are often from an entrepreneur background have made a successful business and now would like to give back to other entrepreneurs and help them with finance for their new start-up business.
So you’re asking what is the difference between them both, they are:
Business Angels – Give you the financial help you need when you need it, and invest their own money in your business. If a business angel works within an angel network the angels will pool together with their investment as well as sharing research they each do. Angels understand the needs of a new business as they have been there themselves and therefore they not only offer financial help but they can offer good advice when no one else will.
Venture Capitalists – Give you the financial help you require when you need it but uses pooled money the venture capitalist and others have in a professionally managed fund. Venture Capitalists like to take an active role in the business they are investing usually being a director or on the management board of the business.
So if you’re looking for some financial help for your new start-up business or even your struggling business you don’t just have the options of:
• Family
• Friends
• Banks
• Loans
• Credit Cards
You have the option of using a Business Angel or a Venture Capitalist. Which ever one you decide to use the only way you’re going to show your serious in wanting their help is to have a well planned and thorough business plan.
A business plan will not only be used to show your investor what you planned ideas are and your predicted returns in the next few years will be it will also be used for you to run your business well. Your business plan will show others what your initial goals were and if you succeeded in these as well as any risks you planned for and if any of these actually occurred and if they did, did you cope ok with rectifying the risk.
Your business plan shouldn’t just be placed in a drawer and forgotten about it should be regularly updated. Your business will continue to change and usually out of your control and you should reflect on these changes within your business plan. You should have contingency plans to deal with any external influences that would affect your business and the way in which you run it.
You should now be a little wiser of the facts of the difference between Business Angels and Venture Capitalists and how they can help you.
Jene Pedder is the Webmaster of Angelstartups who specialise in helping you find a Business Angel or Venture Capitalist.
Business Angels what are they you may ask, they often work as individuals who themselves are entrepreneurs and have made their dream come true in whatever business sector they chose. They have now have the experience and financial backing to help other entrepreneurs to start their own business just like themselves years ago.
Venture Capitalists are very similar to Business Angels they are often from an entrepreneur background have made a successful business and now would like to give back to other entrepreneurs and help them with finance for their new start-up business.
So you’re asking what is the difference between them both, they are:
Business Angels – Give you the financial help you need when you need it, and invest their own money in your business. If a business angel works within an angel network the angels will pool together with their investment as well as sharing research they each do. Angels understand the needs of a new business as they have been there themselves and therefore they not only offer financial help but they can offer good advice when no one else will.
Venture Capitalists – Give you the financial help you require when you need it but uses pooled money the venture capitalist and others have in a professionally managed fund. Venture Capitalists like to take an active role in the business they are investing usually being a director or on the management board of the business.
So if you’re looking for some financial help for your new start-up business or even your struggling business you don’t just have the options of:
• Family
• Friends
• Banks
• Loans
• Credit Cards
You have the option of using a Business Angel or a Venture Capitalist. Which ever one you decide to use the only way you’re going to show your serious in wanting their help is to have a well planned and thorough business plan.
A business plan will not only be used to show your investor what you planned ideas are and your predicted returns in the next few years will be it will also be used for you to run your business well. Your business plan will show others what your initial goals were and if you succeeded in these as well as any risks you planned for and if any of these actually occurred and if they did, did you cope ok with rectifying the risk.
Your business plan shouldn’t just be placed in a drawer and forgotten about it should be regularly updated. Your business will continue to change and usually out of your control and you should reflect on these changes within your business plan. You should have contingency plans to deal with any external influences that would affect your business and the way in which you run it.
You should now be a little wiser of the facts of the difference between Business Angels and Venture Capitalists and how they can help you.
Jene Pedder is the Webmaster of Angelstartups who specialise in helping you find a Business Angel or Venture Capitalist.
Wednesday, 21 November 2007
What are Business Angels, how can they help me?
A business angel is a person who themselves have set-up their own business in the past and now have the finance and motivation to help other people do the same by them providing some finance backing to help a company that is struggling but has potential in the future but also a new business that wants to start-up.
Business Angels will only invest in a business if they think it will succeed and make a profit this may be over a year or more. They won’t only provide finance and time and effort but most also provide information and their know-how on how to make a business successful and other businesses that are in the same quote as them. With all this covered business angles do want a higher rate of return than maybe other kind of investors and stocks and bonds.
Many business angles are from an entrepuncial background and have begun at the bottom and worked there way up and they feel satisfaction and pride in being able to help someone else achieve their goals. But that’s not only why they do this but also to make some money for themselves as the business angels can make up to 400% back from their first financial investment as a stock market can only make 9%. There is only a special kind of person to become an angel, as they have to make a commitment to the business as they are investing there hard earned money. Everyone who has an idea wants to make it into a successful business; the business angel may have been in the same vote years ago and can see your motivation and drive.
A business angel can be found all over the UK they might even be in your village or town, but you won’t know until you start looking. The Internet is a good way to start by searching the World Wide Web for business angels and venture capitalists. When you do contact them state exactly what your product and or service is and why you want financial help. You will need to show them a well planned business plan which states over the following years how you want to progress and if you want to expand your products, services or take on staff etc. the list is endless but it all needs to be stated in your well presented well planned business plan. You need to clearly think about what you’re going to say when you actually meet the business angel as the meeting will be one of the most important in your life, it means you can secure finance for your business.
A business angel may invest from £25,000 to £100,000 but there are instances when business angels join together they may be friends and know each other and think the business is a good investment and make an angel group, which can invest from £250,000 to £500,000. From the business angels investment they want a good return and some angels may stick around helping for a few years financially and with advice helping their business succeed for the future.
Jene is the Webmaster of Angelstartups who can help you find a Business Angel .
Business Angels will only invest in a business if they think it will succeed and make a profit this may be over a year or more. They won’t only provide finance and time and effort but most also provide information and their know-how on how to make a business successful and other businesses that are in the same quote as them. With all this covered business angles do want a higher rate of return than maybe other kind of investors and stocks and bonds.
Many business angles are from an entrepuncial background and have begun at the bottom and worked there way up and they feel satisfaction and pride in being able to help someone else achieve their goals. But that’s not only why they do this but also to make some money for themselves as the business angels can make up to 400% back from their first financial investment as a stock market can only make 9%. There is only a special kind of person to become an angel, as they have to make a commitment to the business as they are investing there hard earned money. Everyone who has an idea wants to make it into a successful business; the business angel may have been in the same vote years ago and can see your motivation and drive.
A business angel can be found all over the UK they might even be in your village or town, but you won’t know until you start looking. The Internet is a good way to start by searching the World Wide Web for business angels and venture capitalists. When you do contact them state exactly what your product and or service is and why you want financial help. You will need to show them a well planned business plan which states over the following years how you want to progress and if you want to expand your products, services or take on staff etc. the list is endless but it all needs to be stated in your well presented well planned business plan. You need to clearly think about what you’re going to say when you actually meet the business angel as the meeting will be one of the most important in your life, it means you can secure finance for your business.
A business angel may invest from £25,000 to £100,000 but there are instances when business angels join together they may be friends and know each other and think the business is a good investment and make an angel group, which can invest from £250,000 to £500,000. From the business angels investment they want a good return and some angels may stick around helping for a few years financially and with advice helping their business succeed for the future.
Jene is the Webmaster of Angelstartups who can help you find a Business Angel .
I want to start my own Restaurant Business but what finance options do I have?
So you want to start your own restaurant business but your worried you can’t raise the finance you need to set your business up, if so this article is for you. I will cover the different options that you may want to think about where you can get finance for your new restaurant business, the following are: -
· Your friends and family – you may think this is the best option if they have the finance available for you, but you have to remember they will only have a certain amount of money available and proberly wouldn’t be able to give you more if you ran into trouble and also you may feel bad not being able to repay them as quickly as you thought you might be able to, as making a profit in a business can take a good year or even more. You will also have to discuss what interest you would give them, all this may cause problems with your relationships with the person or persons is it worth it, give it a thought.
· Your savings – if you have a good amount of savings you may be able to use them for your new restaurant business, it depends on the amount you have saved. This amount may run out quickly and if it does you would have to have a plan b in which you could get finance from elsewhere.
· Credit Cards – they offer you money to buy items but if you wanted cash from these they usually charge a daily interest rate for this. Credit cards also have a maximum limit on these depending on your credit history this might be only £3,500 and this wouldn’t get you far in setting up your business so you would have to take out more than one card, but also you have to pay a minimum amount every month and when your setting your business up and have no income coming up you may not be able to afford the minimum payments every month.
· Home Equity – using your home as equity can be a very risky, what happens if your business doesn’t work out the way you think it would and you couldn’t pay bills etc. your house may be taken away from you leaving you with no house to live in, you need to seriously think this one through is it worth the risk?
· Bank Loans – you may be able to take out a bank loan if you have a good credit history, the amount you may be given is up to this and therefore it could be a few thousand pounds but it could be a lot more like fifty thousands pounds. Interest would be calculated every month and it depends on the company on how high this may be.
· Angels Investors – business angels can give you from twenty five thousand to up to two hundred thousand pounds depending on how many angels group together if this is possible for your business. The angel or angels will provide financial backing for you at the correct time and will give you advice but won’t be involved in the running of the restaurant on a daily basis. Be prepared as they will want a good stake of the company so they can get the money back they invested and more, but they can be very helpful as they may have done the same or similar to you only a few years ago and made a success of their business enabling them to help others out.
· Venture Capitalists – they provide financial backing for your new restaurant business but also help you sort out how to run the restaurant and help make important decisions etc. They will also want a good return for their investment like the business angels.
All of the above are options available to most people and I’m sure whatever circumstances you’re in you will find appropriate funding for your restaurant business.
Jene is the Webmaster of Angelstartups who help provide funding for a Restaurant Business.
· Your friends and family – you may think this is the best option if they have the finance available for you, but you have to remember they will only have a certain amount of money available and proberly wouldn’t be able to give you more if you ran into trouble and also you may feel bad not being able to repay them as quickly as you thought you might be able to, as making a profit in a business can take a good year or even more. You will also have to discuss what interest you would give them, all this may cause problems with your relationships with the person or persons is it worth it, give it a thought.
· Your savings – if you have a good amount of savings you may be able to use them for your new restaurant business, it depends on the amount you have saved. This amount may run out quickly and if it does you would have to have a plan b in which you could get finance from elsewhere.
· Credit Cards – they offer you money to buy items but if you wanted cash from these they usually charge a daily interest rate for this. Credit cards also have a maximum limit on these depending on your credit history this might be only £3,500 and this wouldn’t get you far in setting up your business so you would have to take out more than one card, but also you have to pay a minimum amount every month and when your setting your business up and have no income coming up you may not be able to afford the minimum payments every month.
· Home Equity – using your home as equity can be a very risky, what happens if your business doesn’t work out the way you think it would and you couldn’t pay bills etc. your house may be taken away from you leaving you with no house to live in, you need to seriously think this one through is it worth the risk?
· Bank Loans – you may be able to take out a bank loan if you have a good credit history, the amount you may be given is up to this and therefore it could be a few thousand pounds but it could be a lot more like fifty thousands pounds. Interest would be calculated every month and it depends on the company on how high this may be.
· Angels Investors – business angels can give you from twenty five thousand to up to two hundred thousand pounds depending on how many angels group together if this is possible for your business. The angel or angels will provide financial backing for you at the correct time and will give you advice but won’t be involved in the running of the restaurant on a daily basis. Be prepared as they will want a good stake of the company so they can get the money back they invested and more, but they can be very helpful as they may have done the same or similar to you only a few years ago and made a success of their business enabling them to help others out.
· Venture Capitalists – they provide financial backing for your new restaurant business but also help you sort out how to run the restaurant and help make important decisions etc. They will also want a good return for their investment like the business angels.
All of the above are options available to most people and I’m sure whatever circumstances you’re in you will find appropriate funding for your restaurant business.
Jene is the Webmaster of Angelstartups who help provide funding for a Restaurant Business.
Tuesday, 13 November 2007
Debt Vs Equity Funding
So you’ve just sorted all your ideas, hopes, predictions and forecasts out and turned them into your business plan. You’re now ready and armed to pursue some business funding. So what business funding is available to you?
There are two main categories that you need to know about when it comes to business funding; Debt Funding and Equity Funding. Both of these finance options have their advantages and disadvantages; making it easier to find the one that fits your business in the best ways.
The term debt funding refers to money that it borrowed and has to be repaid over a period of time, this is normally re-paid with interest. This debt funding can either be short term or long term. In a short term sense the full amount to be repaid is done so within a year. In a long term sense the repayments will go on for over a year. With debt funding your only obligation to your lender is to pay back your loan. However in the case of smaller businesses guarantees will probably be needed; making commercial debt funding almost the same as personal debt funding. Debt funding comes from resources such as banks and traditional lenders. With debt funding you will have to make re-payments monthly, which will include interest.
The term equity funding is the exchange of money for a share of business. This allows you to obtain funds for your business without incurring any debt. Selling equity means taking on investors. Many small businesses raise equity by bringing in investors to make their business succeed and get a return on investment. The two main types of equity funding are business angels and venture capitalists.
The advantages of Debt Funding are:
• Don’t have to give up ownership/future profits of your business. Your lender has no control of the running of your business
• Using borrowed money to get your business assets will allow you to keep your business profit in the company meaning you can use this profit to pay a return to owners of the company.
• Interest is tax deductible
The disadvantages of Debt Funding are:
• Too much debt may impair your credit rating
• Use profit to pay back debt means if you have a lot of debt all your profit will be used to repay it, leaving nothing to show for your hard work
• Must have sufficient cash flow in your business in order to repay loans
• The riskier the loan the higher the interest rate
• Debt funding can require collateral to secure your loan, which will be seized if you can’t repay your debt.
The advantages of Equity Funding are:
• You do not have to pay back your investors even if your company goes bankrupt
• Business assets do not have to be pledged as collateral to obtain equity
• Businesses with sufficient equity will look better to lenders, investors, etc
• Your business will have more cash available because it will not have to make debt payments
Disadvantages of Equity Funding are:
• You will have to relinquish ownership and a share of your businesses profit to other investors
• Other owners may have different ideas than yours on how businesses should be run
• Payments to investors in C-corporations are not tax deductible
Angel Start-ups, specialists in Business Funding
There are two main categories that you need to know about when it comes to business funding; Debt Funding and Equity Funding. Both of these finance options have their advantages and disadvantages; making it easier to find the one that fits your business in the best ways.
The term debt funding refers to money that it borrowed and has to be repaid over a period of time, this is normally re-paid with interest. This debt funding can either be short term or long term. In a short term sense the full amount to be repaid is done so within a year. In a long term sense the repayments will go on for over a year. With debt funding your only obligation to your lender is to pay back your loan. However in the case of smaller businesses guarantees will probably be needed; making commercial debt funding almost the same as personal debt funding. Debt funding comes from resources such as banks and traditional lenders. With debt funding you will have to make re-payments monthly, which will include interest.
The term equity funding is the exchange of money for a share of business. This allows you to obtain funds for your business without incurring any debt. Selling equity means taking on investors. Many small businesses raise equity by bringing in investors to make their business succeed and get a return on investment. The two main types of equity funding are business angels and venture capitalists.
The advantages of Debt Funding are:
• Don’t have to give up ownership/future profits of your business. Your lender has no control of the running of your business
• Using borrowed money to get your business assets will allow you to keep your business profit in the company meaning you can use this profit to pay a return to owners of the company.
• Interest is tax deductible
The disadvantages of Debt Funding are:
• Too much debt may impair your credit rating
• Use profit to pay back debt means if you have a lot of debt all your profit will be used to repay it, leaving nothing to show for your hard work
• Must have sufficient cash flow in your business in order to repay loans
• The riskier the loan the higher the interest rate
• Debt funding can require collateral to secure your loan, which will be seized if you can’t repay your debt.
The advantages of Equity Funding are:
• You do not have to pay back your investors even if your company goes bankrupt
• Business assets do not have to be pledged as collateral to obtain equity
• Businesses with sufficient equity will look better to lenders, investors, etc
• Your business will have more cash available because it will not have to make debt payments
Disadvantages of Equity Funding are:
• You will have to relinquish ownership and a share of your businesses profit to other investors
• Other owners may have different ideas than yours on how businesses should be run
• Payments to investors in C-corporations are not tax deductible
Angel Start-ups, specialists in Business Funding
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