¶ … Business Finance
The most difficult task for individuals starting business is raising the initial capital required to kick-start the business. A budding entrepreneur may have the necessary ideas about starting a successful business empire but without initial investment, the idea may as well be dead and gone. For this reason, this report outlines several sources of finance a business can source from, their implications, cost as well as appropriateness. These sources include venture capital, bank loans, friends and family, savings and credit cards among others.
Cost
Payback Terms
Sizes
Against
Personal Savings
No cost
Easy, cheap
Risk of Loss
Friends & Family
Usually good rate or none
Very flexible
Flexible, best value
Can create friction
Home Mortgages - Traditional or Seconds
7-9%
8-14% on equity loans
Very long and flexible
80-100% + of home equity value
Cheapest, longest term
Your house is at risk in the event of non-payment
Credit cards
16-23%
40-60 months
3,000-10,000
Easy qualifying, no collateral
Small amounts
Suppliers
Free
30 days +/-
Inexpensive, unsecured
Short-term
Landlord
Adds to rent cost
Over term of lease
Preserves cash for assets you can't take with you
Hard to get; assets acquired are usually only good at one location; difficult to move
Venture capital
25-40%
5-7 years
$500,000+
Can get large amounts
Very hard to get; share ownership
Commercial mortgage
7-9%
25-year payment; all due in 10 years
$300,000+; 75% of appraisal
Specialized lenders (industry expertise, auto, business brokers, high tech, specialized equipment, computers, phones, etc.)
12-18%
5-7 years
Varies
Accessible through dealer, who is motivated to make sale of equipment or business; payback terms more favorable than bank
Debt service can be high
Leasing companies
12-18%
5-7 years
Varies
Same as above; also 100% financing
SBA
7-9%
7-20 years
$50,000-1,000,000
Planning helps in well utilization of capital to help bring increased productivity to the business, efficiency as well as market penetration via advertising. In addition, planning helps in prioritization of activities to undertake in any fiscal year by comparing operation costs with the benefits of proposed expenditure.
Dissemination on information in the workplace helps improve employees' knowledge and help them make better judgements. Disseminated information helps educate or promote a concept among the employees to help them tackle workplace tasks. Instructions as well as memoranda are ways information is disseminated to encourage recipients to comply with a procedure in the belief of enterprise improvements.
Impact of Finance on Financial Statements
A loan is a business liability. Obtaining a 2-year interest free loan of £5,000 from the A Alex Ltd. is a current liability would increase the current liabilities of Riggs. This is likely to reduce the company's total assets from 30,317 to 25,317 euros.
By obtaining a 5-year loan of £10,000 at 10% interest per annum, Riggs long-term liabilities would increase. A 5-year loan is a long-term liability and would increase the liability of the company from the current amount to 10,000. This would result in the reduction of net assets to 25,337 euros.
A one 1-year line of credit with a major supplier for purchase amounting £1,500 is a current asset for the company. This current asset would result in increasing the total amount of current assets from 35,974 to 37,474 euros.
Issuance of shares…
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