Wednesday, October 10, 2007

Financing A Must For Growth

Financing means getting financial support from financial institutions. A start up company or a company, which has been in existence, requires on going finance. Some companies to run the day-to-day operations require financial support. Some companies also require financing to expand their services and create more branches and develop.

The rate of interest for financing is pretty high and financing institutions like banks provide loans to the business owners. The borrowed money and interest amount are repaid in installments. While financing you should be very careful as the amount borrowed and the amount you will repay will not be the same, as you need to pay along with the interest rate, which could be 15% 20%. Suppose, you go for a loan for 100,000 dollars, then the amount repayable would be 125,000, but the best part is you can repay in installments over a period of time.

While financing you need to check the interest rates, monthly repayable amount, finance terms and the repayment term. You should first evaluate the amount of money required for financing and also look at returns that would be generated from the investment. You should also calculate and find in how many years the investment would generate profits for the company. The loan amount should be adequate and it should help in growth.

The banks or financial institutions, which provide financing facilities, get the financed amount back in installments including the interest rates. The banks or financial institutions make profits and they normally finance with some fixed assets as collateral. A collateral is a guarantee that the person would repay the borrowed amount and in case if the person does not repay the borrowed amount on time, then the lenders have the right to sell the collateral.

For small business owners, the government provides financing schemes, which helps in promoting, small and medium sized businesses. The small and medium sized businesses also get loans from U.S. Small Business Administration (SBA) and the financing schemes are easy and flexible. In fact it is easier to get a loan from U.S. Small Business Administration schemes than getting a loan from banks and other financial institutions. If you apply for Small Business Loan program then the SBA would stand as security for the borrower.

One other financing option is equity financing from family, employees etc who will be provided with shares of the company in exchange for money. A company can also consider financing in the form of venture capital. The venture capitalist invests in the company and takes a risk if they feel the company would grow and provide adequate returns. Financing through venture capitalists is a difficult task and there are many strict guidelines to be followed by the management and proper accounting procedures have to be followed. Venture capitalists would also be part of the management and while taking decisions their role has to be kept in mind.

Getting a venture capitalist for financing your projects would be a very difficult task as they only finance where they can see tremendous growth opportunities and returns. There are many financing options through which you can develop your company. It is left up to the businessperson to choose the right finance option.

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