Factors to Consider when Choosing the Methods of Financing your Business
Whether you’re trying to find funds to start up a small business or grow an existing one, choosing a proper supply of company funding can be very tiresome. 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 can help you begin in 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 is therefore important that you analyze by comparing and contrasting one source of funding over the other in order to establish one that has the lowest cost of financing of them all. For instance if you compare the cost of financing of borrowing from family and friends vice vie getting a loan from lender institution, it is evident that the later will be more costly than the former keeping in mind the interest rates and other associated fees involved.
Level of risk
When choosing the type of financing option for your business it is important that you first understand the level of risks involved should you fail to meet the financial commitments. Loan acquired from pals and family will mean jeopardized relationships and trust while those obtained from bank and other lending institutions will brings about liquidation of assets and current debts. 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.
Level of control
Control is another factor that comes into play whenever you choosing which source of financial option to go for. Business people who like keeping their control and decision making process at their own hands are recommended to go for loan money instead of equity money. Equity financing on the other hand has its own fair share of advantages. Independent of the added money, the investor’s suggestions and insight are also important for the success of the organization. Thus choose the most suitable option in accordance with your company requirements and structure.
Duration of borrowing
Before funding it is important to be clear on the time period you need the loan as well as the payment period. It will be appropriate and cost effective for your business to match up this two factors if you want to substantively use your finance for development purposes.
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