Starting a New Business
Financial Capacity – Do I have enough funds to start my business?
Adequate funding is one of starting points for setting up a business. In order to determine whether you have got enough funds, it is important to consider the following questions:
- How much money do I need?
- What will I do with the money?
- When will I repay the money?
- How will I repay the money?
- What can I offer as security?
Who will lend me the funds to start my business?
The most common sources of finance for small businesses are:
- Personal savings
- Loans from family and friends
- Trade creditors
- Bank loans
- Venture capitalists
If you need to borrow money to start your business, all lenders will require you to provide adequate security for the loan to consider the application. The lender will also need to know your capacity to service the loan, so a plan of how you will generate the required cash to meet repayments is important. If a loan is required, your personal net worth will determine your borrowing capacity to a large extent.
Your personal net worth is the value of your accumulated assets less your liabilities. Alternatively, it is the sum of all you own, less what you owe to others. This can be expressed in the following equation:
Personal Net Worth = Assets – Liabilities
Will the government give me money to start my business?
Generally, no level of government will assist with starting a business. While there are no specific grants or loans available to help people start or expand a business, a wide range of assisting programs and support services are provided by both governments and some private sector organisations.
How do I apply for a loan?
To secure financing, the lender will need to be convinced that you have the requisite skills and abilities to build a successful business. You will be required to supply a range of information which demonstrates your strengths and past business performances that are relevant to the current business idea.
In general, when applying for a loan, the lender will require to see information on the business, your financial history, the amount and purpose of the loan, details on the security you can offer, and a monthly cash flow budget for the first twelve months of operation, as well as a loan repayment schedule. You are more likely to succeed with your application if you can read more…