Methods of financing a new venture – The best method to adapt on how to finance a startup business using a long term methods of financing your business venture. the truth is that there are not hidden secrets to making money or financing a business venture.
Especially making money online or running an online business, perhaps the finding ways of financing a business venture should be the target. I have seen people ask question like how to finance a business plan with no money, funny right? Yeah, that’s funny, every business needs some sort of capital to commence, expand or increase business working capacity.
My point from the above is that business can only trend or perform better if given an adequate business financing options, options to select from the possibly avenue to finance the business. The fact is starting up a successful business venture requires a creative business funding by the mastermind, therefore, he/she must source for ways of financing a business.
Methods of financing a new venture And Lending For New Business
New ventures are risky undertakings for a business, so therefore, decisions about bank lending to support new venture must be risk viewed. When an individual sets himself up in a business for the first time, he may well need a small overdraft facility to support his day to day trading.
The size of the overdraft facility might be allowed to grow as the business develops, grows in size and proves itself with several years of successful trading. Source for ways of financing a business is one thing, another is the risk in lending for new ventures is more evident in medium term loan, to help towards the initial purchase cost of the business. The risk should be fairly self evident with proposal to set up a new business or a new product, as there is no evidence that a sufficient market demand will exist. The venture might be too optimistic in its experience.
Types Of New Venture
There are different types of business financing that a new venture may want to adapt, check out the following;
- A salary earner, who has resigned, retired or made redundant and now wishes to go into business. He may decide to buy an existing business or start a new one.
- An existing business, profitable or not wishing to diversify, take for instance a shop selling books now wishes to start publishing books.
- Professionals wishing to set up their own practice, for example, a doctor or dentist now wishing to set up his own clinic, in some cases having worked under a more experienced practitioner.
- Management buy-out which is a situation where managers of a business purchase it from the existing owners.
- The purchase of an existing business by an individual (or a group of experience in individual in the business or required connection with the business, For instance one company wishing to take over another business, which is not in direct competition with their own, in essence the take over involves some form of diversification into a new area.
For a new business venture to commence its business activities, the owner has to at least do his due diligence to find out the best ways of financing a business venture before selecting the best methods of financing the business, studies has shown that proper due diligence can avert future possible failure.
Here are a few detailed information about some of the various types of new ventures;
- Salary earner – Retired or made redundant buying a shop.
- This is a new venture and the customer has not managed any type of business before has no knowledge of the trade.
- What is the reason of selling of the business by existing owners?
- What is the nature of the business?
Note whether it is a limited business or not, if it is a limited liability, find out whether it has been registered with the regular of corporate affairs commission?
- If the balance sheet was given, the reasonableness of each of the term in the balance sheet should be ascertained carefully but is it was given cash flow projections and profit projections should be studies and analyzed.
- Is the amount the customer required to pay reasonable or is it the high side?
- What was the customers former salary?
- What would be the income from this proposed business be?
- Would he be able to meet the repayment schedule?
- Cash flow analysis should be examined?
- What is the security being offered? This may be personal guarantee. This lending banker would go further to ask the following questions in order to satisfy himself of the lending.
Questions To Ask When Considering Methods of financing a new venture
Conceiving business ideas and finding methods of financing a new venture should be paramount, but then, one thing that a lender must consider is, to know if the customer has any previous experience in the trade he intends to go into, has he run his own business before or has he managed a similar business before? Ask question like why is the owner selling?
- Is the premise leasehold or freehold? If it is leasehold what are the term of agreement? Also one has to consider the adequate term of certainty of renewal which must exist if customer is to have use of the premise during the term of the loan. Another question to ask is what is the rent to be paid?
- Has stock been inspected and are they all salable?
- What amount is required from the bank? What is the customer’s contribution? Three years audited account should be made available to assess the progress of the business. What is the repayment term? Also ensure that cash flow can absorb repayment schedule.
- Security is a guarantee supported by collateral security which is usually personal asset like building.
At the end of the day, business men do not wish or pray for money to fall on their laps to help expand or start up a new venture, actually business men who seek to expand their business or individuals who wants to start up a new business have the single responsibility to source out methods of financing a new venture, this is their primary concern, the secondary concern is nurturing the business to growth and making profits.