A business finance source is a way a business can obtain funding, either for start-up or operating expenses. There are many different types of sources, including sales, loans, and investors. Each has different terms, benefits, and disadvantages. Business owners tend to use two or more different sources in order to fund their business.
Business finance sources fall into two main categories: internal and external funding. Internal funding comes from the profits made by the business by sale of products or assets. External funding comes from lenders and investors. The most common external finance sources are loans. Short and long-term loans require borrowers to repay funds at an interest rate for a set period of time. Overdraft loans allow a borrower to spend a certain amount of money, and the lender charges interest on the overdraft amount. Debentures are loans that let business owners pay off all loaned funds at a specified time at a set interest rate.
Before deciding which method is best for a company, business owners should consider a variety of factors. The cost of the business finance source usually is the most important factor considered. Owners look at the interest rates and payment plans to determine the profitability of obtaining a certain funding source. Businesses that have a history financial stability may want to consider an internal source of revenue before opting for an external source. It's also important to determine how long the business will need additional funding. A short-term loan would be best for projects that would only take a short time to complete.
Business finance start-up generally refers to the cost to start a new business. It includes determining, calculating, and obtaining start-up costs, as well as managing those finances effectively to ensure the profitability of a new business.
The first steps to business finance start-up are to determine and estimate the amount of funds needed to open a business. These start-up expenses may include one-time fees, such as permits and licenses needed to operate the business. Initial costs may also include ongoing fees, such as rent and utility payments. Business owners usually only include the necessary expenses when determining the total cost to start-up. In order to estimate the amount of funds needed for the business, owners should set up worksheets that list each expense and how much it costs.
Once a business owner has an idea of how much it will cost to start a business, he or she can research the different business finance start-up options available. Most start-up funding comes from loans, which are provided by banks, the Small Business Administration, and other financial companies. These loans are usually based on debt financing and vary in amount of funding, interest rates, and terms of repayment. Family, friends, investors, or venture capitalists can also provide start-up financing based on equity. Federal grants are an additional option for non-profit businesses. Unlike most financing, grants do not have to be repaid, but they usually have strict requirements in order to obtain these funds.