Many people dream of starting their own companies someday, but the question of capital almost always stands in their way. For successful long term growth of a company is reliant on availability of not only enough capital but the right kind of financing. There are several categories of financing possibilities. Smaller ventures sometimes rely on personal bank loan, crowd funding, loans from friends or family funding. There are a number of sources to deliberate when looking for start-up ﬁnancing. It is important to consider how much money is needed and when it will be needed.
Debt and equity are the two major sources of ﬁnancing. Government grants to ﬁnance certain aspects of a business may be an option. Also, incentives may be available …show more content…
Friends and Relatives
Founders of a start-up business may look to private ﬁnancing sources such as parents or friends. It may be in the form of equity ﬁnancing in which the friend or relative receives an ownership interest in the business. However, these investments should be made with the same formality that would be used with outside investors.
The proprietorship stake resulting from an equity investment allows the investor a cut in the company’s proﬁts. Equity encompasses a perpetual investment in a company and is not repaid by the company at a later date. The investment should be properly deﬁned in an officially created business entity. Companies may institute different classes of stock to control voting privileges among stakeholders. Simi¬larly, companies may use diverse types of preferred stock. For example, common stockholders can vote while preferred stockholders usually cannot. However, common stockholders are last in line for the company’s assets in case of default or bankruptcy. Preferred stockholders receive a prearranged bonus before common stockholders receive a dividend.
4. Life insurance …show more content…
The peril for the investor is that the com¬pany will default orgo broke before the maturity date. However, because bonds are a debt instrument, they are ahead of stake holders for company assets.
12. Lease A lease is a method of attaining the use of assets for the business without using debt or equity ﬁnanc¬ing. It is a lawful agreement between two parties that speciﬁes the terms and conditions for the hire charge of a physical resource such as a house and paraphernalia. Lease payments are often payable yearly. The contract is usually between the company and the leasing institute and not directly between the company and the organization providing the resources. When the lease ends, the asset is either given back to the owner, the lease renewed or the asset is procured.
The advantage of a lease is that it does not tie up funds by purchasing assets. It is often equated to purchasing an asset with debt ﬁnancing where the debt settlement is spread over a period of years. Conversely, lease payments often come at the start of the year whereas debt payments come at the end of the year. Consequently, the business may have more time to make money for debt payments, even though a down payment is usually mandatory at the beginning of the loan