Getting The Best Financier
We all at one time or another in our lives find ourselves in need of loans or financial assistance. You may get this assistance from family, friends, potential investors and banks. Choosing the right source of business finance is a difficult and very engaging activity. It is important to weigh the costs and benefits before settling on any institution to offer you funding. Below are things you ought to consider before choosing a source that best meets your financial needs.
The first factor you should consider is the risk involved. At times things may happen that may make us unable to repay our debts on time. If we choose to borrow from family and friends, we should weigh the repercussions of not being able to pay the loan on time on our relationships. If you are a new business owner, it may be a bit difficult to acquire funding from banks.However, some financiers are willing to lend start-up businesses money but they ask for higher returns as compensation for the risk they are taking. It is important to consider the effects borrowing from these institutions will have on your future cash inflows. When borrowing, ensure that the demands of your source of finance do not bring an imbalance of equity and debt in your business.
Control should also be put into consideration when choosing the source of your finance. Banks and other money lending institutions lose the right to follow up on your business once you are done paying your loans.Investors on the other hand will continue having some control over your business until they are bought out. It is better to acquire loans if you wish to maintain independence in decision making after payment of your loan.
The cost of finance should also be considered. The aim of each and every business is to minimise costs incurred and maximize the business’ wealth. Interest rates, broker’s fees and origination fees are costs you stand to incur when borrowing from banks and other money lending institutions. On the other hand, when you choose investors as your source of finance, costs you stand to incur include dividends. It is important that you weigh the costs and benefits of all sources of finance and choose one that costs you less.
You need to look at the risks involved in both short term and long term funding before deciding on which one to use.Long term loans are paid for years while short term loans are provided for a very short period of time. It is of very high importance that you choose a finance plan that works best for both you and your business.