Types in business financing

Starting the own business need great effort and money from the people. It is not easy for all to start the business overnight. They have to make a perfect plan and implement the plan in the best way. Apart from proper planning money plays a great role in the business. Not all the people are having enough money with them to start the business immediately. They have to arrange for enough finance for starting the business. They can get financial help from the financial institutions to borrow some money for either starting or running the business effectively. There are two types in the business financing such as debt financing and equity financing. In the type f debt financing, the money borrowed have to be repaid by the borrower over certain period of time along with interest. This type of financing may be either long term or short term payment.

The benefits that can be obtained by the borrower from this type of financing are the money lenders do not get ownership interest in the business of the borrower. The obligations of the borrower are limited to pay back the loan. People who have chosen this type of financing for starting a small business should provide a personal guarantee on most of the loans.

If the borrower has many debts, then the lender may consider that the business to be risky and overextended for making further investments. Second type of business financing is equity financing. The definition for this type of financing is exchanging the money with a share in the business ownership. This type of financing enables the borrower to get funds from the lender without taking on their debt and without the need of repaying the specific sum of money at a particular time.

Let us see some of the key challenges that people will face when they choose the equity type of business financing. The major drawback to this type of financing is that borrower is no longer have the completely ownership of his or her business. He or she has to share the control of his or her business with some other investors. This means the investors will share together some degree of power on the business. People who are having an idea of starting their own business with the help of business financing should consider the types and choose the one that can suit their situation and budget.