How to Choose the Methods of Financing your Business
Whether you’re searching for funds to start out up a business or grow one, picking a proper source of company funding can be extremely tedious. The numerous readily available funding options on the market usually leaves most people spoilt for choice. However, to ensure that you to take advantage and make suitable decision it’s important to severely understand the merits and demerits of the possibilities you’re about to indulge in. The following factors will help us begin this endeavor.
Cost of finance
Whichever method of financing you are planning to go for it is important that you consider the effect it will have on the income. Generally, a good financing option is one which seeks to maximize the business wealth and minimize the costs of financing. It’s therefore important that you assess by comparing and contrasting one source of capital with the rest as a way to establish one which has the lowest cost of capital of them all. For example should you examine the cost of money of credit from family and friends vice vie getting a loan from bank association, it’s obvious the later will be more expensive compared to the former bearing in mind the interest levels and other related fees involved.
Level of risk
When selecting the kind of capital financing for your enterprise it is important that you first understand the amount of hazards involved in case you fail to meet with the financial commitments. Loan received from friend and families’ means jeopardized relationship and confidence while those purchased from lenders and other banking institutions will lead to liquidation of assets and current liabilities. This risk factors makes it difficult to acquire a loan more so for startups and also makes it be costly to finance the loans and equity.
Control is another aspect that is important when you choose which way to obtain your finances from. Business owners who prefer keeping their control and decision making process in their own hands are advised to go for loan capital as opposed to equity financing. Equity capital on the other hand has its own fair share of benefits. Independent of the added money, the investor’s suggestions and insight are also important for the success of the organization. Therefore choose the most suitable option according to your business needs and structure.
Length of borrowing
Before funding it is important to be distinct about the time length you will need the loan and also the payment moment. It’ll be suitable and cost effective for the organization to fit up this two factors if you’d like to substantively use your financing for development purposes.