Business Finance : How to choose the best one

There are many reasons behind the immediate failure of home based businesses. One of such reasons is the absence of capital finance that securely wraps up the business and keeps it self-running. Many entrepreneurs don’t realize the actual cost required to establish and successfully run a home based business. If you don’t research the market, seek financing, or assume proper cash management, you’ll find it very hard to properly run your business, the equipments and your staffs. 

If you require financing for your home business (which you obviously need), you have to first decide what kind of financing you require or what kind is best suited for your business. Finance can be purchased in various forms, but is categorized in two main sections: equity finance and debt finance. Equity finance is such a way of borrowing money for your business that you don’t require to repay. You borrow these funds to utilize for your business in return for a share of your business’ profit. Through equity finance, apart from just getting funds to make your business running, you also gain required expertise and business contacts that you can utilize in future. Next is debt finance. This kind of money is loaned for you. This is such a kind of financing that you need to repay within a time frame already agreed. Moreover, you have to repay the loan with added interest. 

A typical example of equity finance is business lenders. These are capitalists who invest in startup companies in order to gain a share of your annual profit. Business lenders are best suited for startup firms as they are very familiar with newly established businesses and don’t hurry to get their margins. Another example of equity finance can be in the shape of venture capitalist. A venture capitalist is more or less like a business lender who provides higher amounts of finance and usually invests more in established businesses. 

You can say bank loans if you’re asked to provide with an instance of debt finance. When it comes to financing, most people think of banks at the very initial stage. However, nowadays, banks have also become very hesitant in lending money to online businesses because of the fear of improper repayment. Another example could be plastic cards. 

Though these are expensive for startup firms, these can be helpful to quickly raise some cash when needed. Another example of debt finance could be overdrafts. However, these are costly and not ideal for long lasting finance.

Though if you compare, you see many options when it comes to debt finance, equity finance is more favorable for startup firms as this will make sure your business run well.