The term financing is usually used to explain loans from banks or other financial institutions. Financing is usually given to business owners, both to be used as an initial capital or to support the ongoing business. Some businesses may require financing to help them through coarse patches, or just to give some liquidity to more smooth assets to cash. In addition, financing is also given to companies that expand their business quickly and need money to support their new operations and facilities.
Because of the high interest and high risk that comes with financing, small business owners are often forced to evaluate their situation from all angles before making financing decisions. This is because there are various types of loans available on the market, each for different purposes and with different interest rates, payment terms and loan requirements. In addition, business owners do not want to misunderstand their loan amount, because obtaining a greater loan value will mean a higher responsibility for the company, while getting a smaller loan will result in an inadequate financing situation.
Back behind, banks or financing institutions serve to provide financing facilities to provide the advantages of the interest paid by the borrower. Instead, they get a monthly payment amount from the company, including interests. Banks usually provide loans through promises of fixed assets to banks as collateral. In the case of default payment, the lender will sell assets to restore your debt to them. However, there may be cases given by lenders without the need for collateral, but with higher interest and a more stringent qualification procedure.
Apart from obtaining financing from lenders, small business owners also qualify for loans from government funding institutions such as small business administration (SBA) or state government. These agents provide financing to help spur small business growth in this country, and usually impose more flexible criteria compared to banks. In a small business loan program run by SBA, they act as guarantor for borrowers so that they get a long-term loan from SBA loan partners.
All sources of financing mentioned so far are commonly known as debt financing. This type of financing will be ideal for companies that have high equity to the debt ratio, which means that the company owner has invested more capital compared to the amount of debt obtained. However, in cases where equity on low debt ratios, it may be difficult for companies to get debt financing. Therefore, leveling for this is to work with equity financing instead.
Equity financing will be funded obtained from friends, family or employees in exchange for shares in the company. In addition, venture capitalists are also a source of other equity financing, which has become a source of general income, especially since dot com boom.
Venture capitalists are professional investors and are ready to take very high risks in return on their investment. However, with the involvement of capitalist ventures, more stringent management and accounting procedures may need to be adopted, in addition to the inclusion of venture capitalists in making big decisions.
It is not easy to obtain financing from venture capitalists because they expect a high rate of return to their investment in return for high risks incurred. Many applicants are rotated until annually, with only a handful that will truly be funded. In addition, venture capitalists hope to grow their company into regional brand names in a short time. Making companies registered in public is also one of the main objectives of the Ventura capitalist.