The words of wisdom, “Do not put all your eggs in one basket” can be applied in financing. There are number of methods which people can use to financing any investment idea which they have in their mind. Take a good example; if you are a buyer, you must consider available resources such as investors, lenders and sellers.
Since when we were young, we were always encouraged to “dream big” and told that there is nothing that can stop us to achieve our dream, but ourselves. As a person who wants to succeed in life, the idea of dreaming big is often part of your routine.
Checking the difficulties that you can undergo when financing your business activity can be the first step of making your dream actually come true. There are various types of financing available, some are more obscure or unorthodox. However, if you take your time researching all avenue of funding, you will be rewarded.
The market has two major source of financing: equity financing and debt financing. It is important for a person or a business to be familiar with these two types of financing in order to choose, seek & obtain the right form that can suit your requirements.
Debt financing is borrowing money that will be repaid during a specific duration with a set of rate tacked on. The agreed period can be either long term or short term financing. Most cases the short term financing include payment within a year. While on the other hand, long term financing will entail repayment period that is more than a year.
The major benefit of this type of financing is that the lender will not gain ownership of your activity. You remain in the control and the only obligation which you have is to ensure that you have made regular & timely payment. A personal guarantee is required, in the case of small startups in order, to facilitate the closing of the financing deal.
On the other hand, equity financing, involves giving the financing entity of the financed activity. Most business owners may dislike any idea of losing their full control of their business. However, the benefit of this financing is that, it doesn’t incur debt. Therefore, this kind of freedom, can give entrepreneurs a great sense of security when they are starting a business. Moreover, some may find it as a great value in their equity financing partners, & their presence as an asset.
It is important to know that, the type of financing that you choose will be based on the needs of your investment and also the kind of available asset or collateral that you have to offer. A substantial amount of debt financing can result to poor credit & shortage of funds in future, due to the inability to apply for more financing.
As mention earlier, there are other unorthodox ways of obtaining funds that can prove to be beneficial for your investment. Some of these options can be your close friends and relatives. The major advantage of obtaining these type of financing is that; they are likely not to interfere with your investments.