The whole business game depends on money invested in. It can change both quantity and quality of doing the business. How is this money problem solved but?
Most of the businessmen invest their own money to start it. If they are short of cash then they take out external finance to support. The need for external finance can be at the start, routine or expansion of the business. There are various sources of external finances and they can be broadly categorized in terms of costs, control and risks.
The most crucial time of business financing is start-up because the businessmen have hardly any credit history or experience to win the trust of the investors. The start-up is based on guts and intuitions.
The need of the finance in terms of dollars can be decided on the basis of business decisions taken. The amount differs from $500 to $500000. For short term goals, the loans might be smaller and repayment terms would be in nearest periods. On the very contrary, the long term goals are fulfilled with visionary long-term financing options backed by equity or debt form of finance resources.
The business loans can be secured or unsecured. The unsecured loans are easy to receive in the sense it does not require any security to be registered or can be quick in terms of deposition of money in bank accounts. However, unsecured loans attract more interest rates because the interest of the lenders are not supported with any physical properties which can be forfeited and loan proceeds can be recovered if borrower fails to pay back in cash.
Generally, the business loans are given to those who have credit history. Hence, at start-up, the businessmen need some sort of securities to offer. The traders need more securities because the investment in trading requires more risk than that in services.
If the loans are applied to bank or other private institutions they would like to receive a project financing reports and exact projections of financial statements to build trust in what businessmen are believe to be a worth of ideas. These all documents are then certified by an external business analyst or the chartered accountant who has enough experience of industry and track the updates day in day out.
Certain investors don’t like to provide the finance just because businessmen are offering them heavy interest rates. They like to get involved in the business and participate as a watchdog in business decisions. They like to track the business direction by attending the annual general meeting every year. Hence, they like to receive a certain voting rights through gain of equity rights in the business.
On the contrary, there are private lenders who don’t even ask the credit history of the business and happy with high interest rates. They don’t like to intervene in the business operations or decisions but expect the businessmen to anyhow pay back the loan proceeds in time with agreed interest rates.