There are many small business owners who started their venture without any funds. To run your own business is an attractive prospect, but it is a sad fact that only a few businesses make it through the first few years of operation.
Access to business capital is often critical to business success. It is important to plan for all possible expenses that may occur and budget appropriately for capital expenses, operating costs, wages and insurance. The purpose of the running a business is to make profit. Be cautious and don’t let business finance repayment drag the whole business down.
Provided that the owner developed a comprehensive business plan with a solid projected cash flow, next step would be to raise finance either by attracting investors or securing a bank loan. Depending on the needed amount, there are a few financing options available to new business start ups.
Business Credit Cards
Opening a business credit card account is probably the easiest way to gain access to a working capital. There are many banks that offer unsecured credit card account with up to $20 thousand available credit. Any larger credit amounts will need to be secured against the directors’ personal assets. Many of these cards come with an attached reward system, so spending and repaying a sizable amount every month will accumulate reward points that may prove to be useful for travel or exchange for other goods.
Business Loans
Applying for a business loan with a bank or a financial broker requires the business owner to produce a well developed business plan that includes a five year cash flow projection. The bank will assess the application and will make a value judgment whether they think the business can survive and whether the owner has what it takes to make the business work. There is nothing the owner can do apart from hoping that the business idea will work and the bank manager will see it that way too. Normally the bank will require security from the borrower – usually the owner’s personal assets. In many cases the bank will establish a “lenders covenant” and monitor the business finance making sure that the borrowed amount is never lower than an agreed percentage of the business value.
Finance Lease
Finance lease if often use to fund business capital purchases such as computer equipment and cars. In this case the financing company purchases equipment on the owner’s behalf and lets the owner use it for an agreed monthly fee. There are many types of different leasing options, so it’s best to discuss available options with hardware and equipment vendors.
Low Doc Loans
Australian financial institutions offer, what is called, a low doc loan facility to businesses that are not able to provide sufficient information to support their income. It is often useful for new business start ups as a new business would not have enough data to produce audited financials that are required for normal business loans.
Whatever the choice may be, business finance provider must be chosen very carefully. For people who are new to running a business it is suggested to discuss the business funding with an experienced friend or a financial advisor.
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