Pointers In choosing The Right Source Of Finance
We all at one time or another in our lives find ourselves in need of loans or financial assistance. You can get loans or financial aid from family, friends, potential investors and banks. It is difficult and time consuming to choose the right source of getting your loans or assistance. 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.
It is very important that you weigh the risk involved from getting financial assistance from your preferred source.We cannot all fully guarantee payment of loans on time.We should consider the risks we put on our relationships with family and friends if we are unable to pay a loan they offer.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. You should take into account what borrowing from these financiers will do to your expected cash flow. You ought to ensure that your debts do not outweigh your equity or else your business will be in trouble.
Consider the control you want to maintain on your business before choosing a source of finance.Banks will hand back full control of your business once you are done repaying a loan. If you choose to finance your business by allowing people to buy some shares, you should know that these people will have a continuous right to be involved in your business until they are bought out.If you would like to have full control of your business, banks are probably the best option.
The cost of finance should also be considered. Every business’ goal is to minimise the cost of finance and maximize returns acquired. If you choose banks and other money lending institutions as your source of finance, you will incur additional costs such as interest rates, broker’s fees and origination fees.If you decide to sell some of your shares, you should also consider payment of dividends to your investors. Before choosing your source of finance, you should weigh both their pros and cons and choose one with the least cost.
Whether we will need short term or long term financial help should also be put into consideration. Long term loans are given for non-current assets and are repaid over long periods of time unlike short term loans that require payment in a matter of months. It is important to choose funding that is most favourable to you and your business.