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Posted on Oct 23, 2013 in Financial

How to choose funding for a business

Whether they have the necessary capital or not, a lot of people today are seriously considering going into business on their own, thinking that this is the best way to ensure a much safer and better financial future for themselves and their families. If you don’t have the necessary amount of money to simply start setting up your business, and you seldom do, then you need to choose among a vast, and many times confusing, array of financial funding tools that can help you start up. These tools are not only meant for new entrepreneurs, but also for business owners who wish to grow their companies. To that extent, one has the choice of credit unions or cards, IPOs or Vcs, which can make it quite difficult for an entrepreneur to choose the right way. This choice is a very important one for the future success of your business, as it can very well mean the difference between sinking in debt and building a highly successful company.startup-capital-intro

There are two major options for anyone looking for financial funding for his or her business: equity and debt. Regardless of the amount of money you need for the start up or growth of your business, this is the decision you need to make. Debt means borrowing money and equity means trading for the ownership of the company. There are advantages and disadvantages to both of these alternatives and the bottom line decision lies greatly in personal preference. If you like to be in control and don’t want to give up ownership, then the suitable course of action for you is debt financing. On the other hand, if you don’t like the idea of taking on a significant amount of debt, especially if you have few assets that can be used as collateral, then maybe equity is more for you. This way, you also get to improve your credit worthiness, which will significantly help you with banks or credit unions. If you research the matter thoroughly and take the time to analyze both options in-depth, you will see that the key to finding the best way o funding your business or growing your company is to use debt and equity together, as the latter offers you the asset base that will facilitate the accomplishing of the first.

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A key element in making your decision and funding your business is, obviously, price. In the case of debt, the price is represented by the interest rate. Short term loans and credit cards have the highest interest rates, so don’t think about using them for your long term needs. Loans backed by assets are the cheapest way you can borrow. On the other hand, pinning down the price of equity is not that simple, as it depends on many factors, such as the number of investors and the terms of equity, but taking into account that each and every investor will eventually take his or her part, this type of financing can be more expensive. Regardless of the amount that the price ends up to be, you need to make sure that it is lower than what you expect to gain from spending it.