Choosing the right source of financing your business will impact growth and profitability of your business. There are plenty of ways to finance your business. Most big and successful businesses are either funded through loans and investments. The terms between the two differ greatly. You will get many investors and lenders. This guide provides you with tips to help you settle for the best source of finance.
It is important to consider the repayment terms. You need to know the time the financing will last. Longer loans accumulate a huge amount of interest with time. On the other hand, shorter loans you have to make larger payments. Take a look at the amount of loan and the repayment period. It is advisable to opt for a higher loan so as to minimize the long-term costs. It is vital you consider doing your investigation to know the different financing methods that are available before you make your final decision. Put into consideration the origination fee, brokers fee, and interest rates. If you want financing in form of an investment, you need to consider money from venture capitalists. This means you will not be required to make repayment for even years. You will repay the investor a steep premium at once. Also, you can choose financing through stocks. However, if there occurs changes in management, it may shift your main focus on your business.
Also, give consideration to the financing requirements. Give consideration to the personal requirements of the lender or investor. Choose a financing source who you meet the requirements fully. The requirements are usually financial ratio tests and credit score. It is advisable you discuss the requirements with the lender before you apply for a loan. Consider talking to several lenders and make comparisons before you settle for a specific one. If you want to finance your business through investment, you need to know the ramifications before you make your decision. This is because venture capitalists in most cases will want ownership stake of your company. You will be expected to buy back the stake at a premium after a certain time. The downside is that the investor will have influence managerial decisions but the time you buy the stakes. Selling your shares in stock for purposes of financing your business has its vital considerations. This include you losing your managerial control or even a larger company taking over.
Additionally, consider the risks that come with different sources of financing. There are certain risks that businesses are exposed to. If you don’t repay the loan on time you risk being prosecuted and risk bankruptcy. You need to know the various options that are available if you fail to make the repayment within the agreed time.