Financing a business involves evaluating many different options. These options involve considering bank loans, commercial mortgages and soliciting investor funds.
When starting a business, two things are always necessary. The first is a plan, the second is capital. Many people are confused about the nature of capital. The popular notion is that capital means financing available in the bank, but this is actually incorrect. The capital comes from the ideas that start the business and create the prosperity and wealth. Therefore, the financing needed to fund the business is actually a result of the tremendous attractive power of the ideas behind the business and not the money itself.
Once the idea is firmly laid out, the next step is soliciting the liquidity needed to make it a physical reality. It may be possible for the business owner to use their own money to set up their business. For some that is impossible; they need outside funds in order to accomplish their initial goals. If the business plan that develops is credible and clear, the start-up owner may be able to obtain financing from a bank. Since any business experiences irregular cash flows, similar to peaks and troughs of waves, it is essential that the business makes it clear to the bank when it expects them and how long they will last.
A secure method of obtaining financing from a bank is to apply for a commercial mortgage. This type of mortgage is for commercial or business property as opposed to residential property. The downside to this kind of financing is that lenders will want a stable and profitable business already occupying the property being mortgaged. For start-up businesses, this may not be feasible, although it will help if the owner had been able to acquire some property already.
For businesses that have property, the good news is that for properties 250,000 pounds and up, they can borrow up to seventy-five percent of the purchase price. There are some conditions that the property must meet, however. The property must be on viable uncontaminated land as well as freehold, which means that there are no other obligations on the land except the business owners'.
Finding investors is an alternative to commercial mortgages or bank loans. Venture capitalists are interested in equity stakes in exchange for a portion of the business's future profits. In gaining the attention and funding of investors the business needs to remain not only professional but clear about their intentions and the stage of the relationship between the investors and themselves. This will ensure that their relationship remains profitable throughout the business's existence.
This relationship is governed by a contract set down at the inception of their relationship. In order to maintain that connection in good standing, both the investors and the business need to fulfill their sides of the contract. The business must deliver dividends on stock, financial reports, etc. The investors, meanwhile, need to refrain from excessively interfering in the business's operations.