Starting a new business is interesting and exciting but it can be a big problem as well. Where will be the business is located? How well it will do there? All of the above is how will you manage the funds to purchase the office? All these small questions require large planning as it will go to affect your business dealings for the long. There is opportunity cost as well for all the business you are thinking for and so it is obvious you will think of the best possible option.
Financing a business can be a big problem as it requires large documentation process and dealing with your bankers and convincing them and explaining them about its good prospects so that you can get good amount of financing at a one go and you can spend time in doing business. Financing the business has usually two options. One you make investment from your own money and the other is you ask your bankers to lend you money in order to do business and in return they will charge handsome amount of interest. Self-funding is the simple and fastest way of getting into the business.
If you have enough savings and income background to cover all your expenses of starting the business then it will save you from many tiresome functions involved in getting the unsecured loan from the bankers. Also you will get loan only if you have good business prospects on paper as well as real and you have convinced the bankers about their money, which is going to be invested indirectly by them only. They will charge interest also at nominal rates if you have decent credit score. You will be able to negotiate in the rates or the loan term if you have good credit score otherwise even your own bankers will not give an eye to you.
You have to prepare the project financing report in which you have to submit the prospects of the new business like how it will operate ad what will be requirement of funds. How much will be required for working capital and how much will be required for capital assets. The interest rate will play an important role in getting the loan. The more independent you will be from your banker’s obligation, the more you will be able to run your business defiantly.
Not everyone can afford to start their business with their own money but what is important to plan and prepare the budgets of expense and business earnings. At least you should cover your variable expenses of the month as early as possible so that you will be step ahead for profit planning and ratio analysis. For example it might be possible that some of your friend can invest at lower interest rate or share in profits. But again sharing means you need to divide your income with your friends. In such a way business financing is very important planning for everyone in order to get the loan.