The establishing of a business structure is largely dependent on its financing. It is therefore necessary to identify and compare sources of capital and marketing activities when deciding on a business plan, as the source chosen to fund the enterprise will determine how the money is raise and how it is paid back. There are several sources of capital and marketing activities, all pertaining to their relative pros and cons. When a practical business plan has been drawn up, it can be worked out how much money needs to be raised over a period of time, and according to that the business can then select a course of action.
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Banks are one of the most well recognized source of funding. Many banks over loan facilities and overdrafts to businesses that meet their lending criteria. A clear business plan, financial projections and sometimes even a personal guarantee is required to acquire a business loan, and the business must generate enough money to cover loan payments. Business owners may also avail some benefits that banks offer due to the competition between banks and new entrants.
The government offers several grant and loan programs, especially aimed at entrepreneurs with good business ideas. Different schemes offer different payment plans, which can be chosen according to suitability. Some schemes also offer business advice, mentor ships and counselling.
Most small business, especially before being fully established, are funded through private investors. These private investors can be family, friends or business associates. Depending on how much money is being raised, a lot of private funding hinges on the factor of trust. How the money will be raised and how it will be repaid needs to be demonstrated clearly. The level of personal networking dictates the funds being raised through high-net-worth investors.
Private angel investors
Private angel investors can be found through professional services, angel groups or through networks. A business plan and financing pitch is presented, and according to that they invest for equity and expect a return, whether in acquisition, IPO or stock buy-back, over a decided period of time. It is advised to involve a lawyer or an accountant when acquiring funds through private angel investors.
In addition to traditional forms of finance, more crowdfunding websites are becoming a widely-acknowledged source of capital and marketing activities. According to Nesta, these sites raised more than five hundred million pounds for small business. Some such sites have features such as enabling investors to buy equity stakes in the business looking for funds, allowing the business the financing it needs and securing a profit for the investors if the business is successful.