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Loans / Lease :: How to Borrow Money, Part 1
There are 2 types of financing: equity financing and debt financing. Unsecured Loan Company Ratings
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The most frequent way to obtain funding for a small, and mid size businesses would be to take credit. Getting a loan usually isn't a simple and short process.
It is always best if you learn around you can beforehand regarding the factors that important in the decision-making means of banks and other lenders once they consider your loan application. For more detailed information you could refer to my other articles.
When looking for funding, you should think about your company's debt-to-equity ratio, which is defined by dividing quantity of borrowed money by amount of purchased the business enterprise. The lower the ratio is: more invested and fewer money borrowed, the more for you can be to get financing and also at more favorable terms.
The decision what financing to pursue conditions case to case basis, however the general rule of tomb is: when you have a high debt to equity ratio you ought to seek equity financing and the other way round.
In the most all cases it is impossible to get 100% financing. Institutions want to see at least 20% of equity in a small business. Building equity can be carried out by investing owners? cash or build it through retained earnings, but on it's own will not guarantee that you receive financing for any business.
Equity financing means financing a business by selling ownership interests to investors or, the cash is raised in exchange for a share of ownership in the organization or getting the directly to convert other financial instruments into stock. It is the way raise funds without incurring debt, or without obligation to settle a specific level of money with a particular time.
Equity sources can be split into two groups: non-professional such us relatives, friends, and employees, etc. and professional that could be split into two sub groups: Private such as Angels and Venture Capital and Institutional including Hedge Funds and Government Assessed Sources. Most of professional groups are experts in particular industries.
Venture Capitalists may review thousands of proposals 12 months, but invest only in certain which may have bigger prospective returns for the capital, great management team, industry growth, competitive advantage and solid exit strategies (e. g. IPO). Venture Capital firms usually passively associated with a company?s management, unless business doesn't perform as projected.
Many people think that Venture Capital firms finance new businesses, but also in the most cases they prefer established companies with stable earnings. If you need money for any start up search for an Angel (Private) Investors. Angels might work alone or in groups (sometimes as large as few hundred people) and usually actively linked to company?s management.
Pros and cons of equity financing
Company shares offer you two major rights: participation in the foreseeable future company?s profit-sharing and decision-making processes. The biggest drawback of equity financing is that you simply relinquish those rights with an outsider.
To be continued.
Yury Iofe, MBA
Universal Business Structured Solution
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