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Self Financing
Posted in Business
Start-up business financing options may be available from the entrepreneur, gifts and loans by family and friends, as well as from commercial lenders.
Entrepreneurial endeavoring attracts a risky lot. Once the great business idea is developed, it is time to handle the finances.
First, it is best to obtain a clear understanding of the difference between business capital and a business loan. The word “capital” has different meanings in finance, economics, and politics.
Business financial capital represents ownership in a business. If it is a sole proprietorship business venture that means 100% capital belongs to the sole business owner. Generally, a business has both capital value and liability exposure. Loans represent the leasing of capital, typically with interest, from another. It must be repaid. Loans come with certain legal obligations and constitutes a business risk or business liability.
The classic source of funding for the budding business venture is the money of the start-up sole trader or partnership. Ask, “What do I own?” Go through everything – money, property, and investments. Make a list. What else will the start-up owner commit financially to the business? What can be liquidated to provide cash? What property won’t the owner touch under any circumstances? Can income from the existing employment of the start-up owner be used to fund the venture?
The first start-up business cost is generally paying for the new business filings for a start-up venture as required by most local, state, and/or federal government agencies. A sole proprietor or new partnership owners can give the new firm a loan from personal assets as described above for this start-up cost.
For a small business venture, this may include financial resources from cash-on-hand and/or the liquidation of some tangible assets, like a seldom used car, etc.
It is best practice at the start-up stage for the owner to do as many things himself rather than asking or paying others. Substantial savings come from an entrepreneur’s prior work experience, imaginative business ideas, and the good advice of senior business owners.
If no immediate family member can serve as business mentor to help think of ways the business can finance itself, the D.C.-based organization Counselors to America’s Small Business (SCORE) is a nonprofit organization that offers free business mentors and advice.
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