Startup Financing Options

2007-03-08 10:33:40

( Business )



There is no fixed formula to determine the exact amount of capital you will need for starting up a small business. Many businesses close down every year mainly because of insufficient startup financing. It is therefore important to be able to estimate the exact amount you require, in order for your business venture to succeed. You can start by making a list of expenses that you expect to incur during the first year of your operations. Separating fixed expenses from variable expenses is helpful. Fixed expenses are operating costs that remain constant, while variable expenses are operational costs that go up and down each month.

There are many alternatives for someone needing assistance in startup financing:

Credit cards can be utilized to obtain a cash advance, or to purchase certain equipment that is required for the business. Credit card companies will require you to pay a minimum amount each month until the loan is paid. It is advised that you pay more than the required amount so that you pay your loan balance sooner.

Banks can provide you with business start up loans. You may apply for a secured loan, which requires you to provide collateral in the form of property or any other fixed asset, or for an unsecured loan where no collateral is needed. Unsecured loans are usually given to people who have a good banking relationship with their bank in terms of keeping a good record with their bank account balances.

The government provides subsidies and interest free loans for small businesses, if you qualify for them.

Factoring allows you to sell your accounts receivable invoices to a factoring company in exchange for funds. These companies first release a certain amount of the face value of your invoice, and then release the balance after your customer pays you. Factoring companies also subtract a certain amount for the service fee from the amount to be collected.

If you are planning to operate a manufacturing business you can obtain a development bond, which has a low interest rate, and a long term financing scheme. A development bond can be used to purchase property and equipment.

Lastly, you may obtain startup financing without applying for a loan by seeking employment. You may set aside a certain amount each month from your pay, and save it until you have enough funds to start up your business.

Above are only some ways you can obtain startup financing. You also seek the assistance of a business consultant who can advise you more on loan options and provide you advise in starting up your business.


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