How to Finance a Small Business
Financing a business whether small or big may be not that easy. You need to learn more about the business before risking your finances.
There are two types of finance, one is all about saving money and the other one is all about lending money.
Usually finance works in business organizations. The financer will lend the business organization money for start up capitals, investment or consumption and the interest will then be charged on the loans itself. Small business is usually the ones who need financing for capitals.
Financing a small business might be really risky. But there is no harm in trying, who knows, that small business might grow in to a big and popular business someday. Of course, you don't just lend your money to anyone that comes across you. You need to know everything about their business first before lending them the capital that they need.
Here are some helpful tips on how you can finance a small business:
- Ask for a business plan from the borrower. This will include outlines of his ideas such as, how he is planning to develop the business and how the money will flow. Make sure that the business plan is somewhat realistic and the person is really eager to achieve everything that the business plan states.
- Ask for a business model that is very convincing. In this business model you should be able to see the detailed financials that shows your business aspects. It should also include the product manufacturing, sourcing costs, project sales and as well as the expenses in the market
- You should know how much money you can lend the borrower by reviewing the business plan and model. You can lend him some funds for start ups and sufficient amount of capital to keep his business running. Start up funds include, office supplies, furniture, equipments, phone lines and printing of business cards. Ask for a specific list of all the expenses and check if it will suit to funds that you are going to lend him.
- Ask for your friends’ help, especially from those people who have experiences in financing business.
- Ask your attorney to set up a legal document about financing the borrower’s small business, and how he will pay you back the money. You should also include the interests, due dates and penalties if ever there will be some delay during the date of the payment.
- You should check the borrower's capability to finance his business up to the extent. In this way you can also see how determine he is in pursuing the business itself.
- You should also ask for collateral. Collateral will always depend on the size of the loan that the borrower is asking. Collaterals act as your security just in case everything didn't go well as expected.
When it comes to financing a small or big business, investigating and studying the business plan and model of the borrower is always important. In this way you will know the capability of the borrower to pay you the amount and the interest of money that he borrowed from you.
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