Options
for Financing
There are as many ways
to finance your business as there are businesses. They divide roughly
into two different types. The difference is in the way the money source
(people putting money into the business) gets paid.
Debt Financing
Debt financing is any kind
of loan. The person loaning you money makes money on the interest
you pay. As long as you continue to pay the loan and interest they
allow you to run the business as you see fit. They will want collateral
in case you can't make the payments. Equipment, inventory, property
or even personal assets can be considered collateral.
Equity Financing
Equity financing means
you sell part of the business to someone else in exchange for money.
The other party hopes to make money in the gamble that their share
of the business will be worth more than the amount of their original
investment. Therefore, you will have to share part of the profits.
An investor also shares part of the risk. If the business makes a
good profit, the investor wins. If the business is a loss, the investor
loses.
The right investor can
be an angel. The wrong investor can be a disaster. If the investor
brings skills or management to the business, obviously it will help
the business. If, however, the investor meddles in business decisions,
and either can't or won't assist with building the business, you and
the business will suffer. An investor must be willing to be patient
with getting their return. Back off investors who want to get rich
quick. Building a business often takes time.
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