Elton John

Acquiring Funds for Small Business:

Acquiring funds for small business to initiate a venture is an intriguing task. An entrepreneur dreaming to start a venture imagines big and desires to transform the imaginations into reality. However, most novice entrepreneurs are not aware about the funding process of small business firm.

This investment is extremely small as compared to cash deposit of $30,000, which is required to set up a franchise store. However, when a business entrepreneur calculates additional expenses as such rent, payroll, inventory and advertising, it is apparent that initiating a small venture is a great deal. Thus, emergence of requisite money to fund a small business becomes difficult in the midst of a car loan, mortgage as well as family matters.

By following the traditional route and obtaining a loan from local bank, does not help the business for a long period, since most lending companies or banks do not lend money to initiate businesses especially without any credit history or assets.

Funding Sources:

Discussed below are four personal funding origins:

1. The first is Life Insurance Policy.
2. Second is Credit Card.
3. Third is the 401 (k) finance plan.
4. The fourth are family and Friends.

These sources have the potential and hence, entrepreneurs can think about them for acquiring funds for a small business set-up. By employing these sources, entrepreneurs become their own bank.

It also gives them a complete control to use the money. A small business entrepreneur, who has a life insurance policy, can use it to attain maximum benefits.  People are aware that life insurance policy gives the money to spouse and family in case of the policyholder’s death, but most people are not aware that they can in fact borrow in opposition to cash value pertaining to their life insurance. Later on, this borrowed money is payable at flexible interest rates that too on terms agreed by the borrower.

The 401(k) plan attained from the preceding employer is also a good source to acquire funds. To borrow money from family and friends can seem very convenient, but remember that there are several risks associated with it. Hence, consider whether the risks are worth taking or not.

Next important source for funding a business is credit card, as it also help entrepreneurs to kick-start their business.

In case these resources are beyond the realms, then business entrepreneurs can think to take the traditional route and decide on bank loans.

Points to Remember:

Business loans are available in the below mentioned forms:

• Long term: These are the most common type of business loans. Such loans are best to fund working capital requirement. Long-term loans are payable by the borrower every month for a specific term agreed with the lender.
• Short term: These loans are for shorter period and calls for a compensation in less than or within a year. It is also payable in one lump sum payment towards the end of loan term rather than paying monthly installments.
• Loans alongside equipments: These loans are simpler to obtain as compared to other forms of funding. Here, the equipments purchased from the funds imply the straight collateral against the loan.

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