Health Care Entrepreneurs - Essay Example

? Health care Health Care Introduction Entrepreneurs with ideas of venturing into various businesses have trouble during the early stage of funding their business. Companies use venture capital funding for serving their best choice, though the issue of venture capitalist requires addressing before taking it as an alternative for financing a startup business. Every entrepreneur with an idea of a prospective business finds it necessary to seek a source of appropriate funding. After the entrepreneur has managed to raise the desired amount of capital, it becomes the initial step of facilitating the ability of the business to thrive (Angioni, 2008). Nevertheless, the business takes a period to reach break-even-point in order to make profits; in fact, there is a need for a financial security for the viability of the new business. Therefore, the paper will focus on comparing various forms of equity and debt financing alternatives, thereby elaborating of their advantages and disadvantages. The paper will also identify the steps involved in determining the financing to undertake, and the stage of the business where Equity and debt financing is most appropriate. Comparing Types of Equity Financing and Debt Financing Alternatives One of the forms of equity and debt financing is the use of personal savings, whereby an entrepreneur uses money saved for a given purpose. There are not expectation of troubles related to drowning draining of an account with saving that are set for financing equity and debt. Therefore, there are plans made to reserve his savings accounts for financing the equity or debt; hence, troubled by an emergency. The other alternative of financing is the use of bank loans, whereby the private banks are approached by the entrepreneurs as sources of financing debts. In this case, the small ventures secure a personal loan or line of credit for various financing their equity or debts, and they leverage their assets real estates, equipment and inventory as collateral to secure their loan. Therefore, the banks are used as an option of small businesses for raising funds, though the final decision of securing the funds depends on the balance established by the entrepreneur about the pros and cons of the bank loan as a source. The other source of financing equity or debt is government grants, whereby the government offers loans and grants programs to entrepreneurs in order to assist them the effort to expand their venture. The grants are in the form of free money while the government guaranteed loan has interest rates that are below the private banks. Therefore, grants are sources of free financing offered by the government organizations and entities, and it can be a substantial source of financing equity and debt in a business. Advantages of Each Form of Financing Available to Entrepreneurs One of the advantages of personal savings as a form of financing is low acquisition cost, whereby the entrepreneur is not bound to pay interest on bank loan. Moreover, using personal savings for financing the business where is a feeling of flexibility in the financing (Jennings, 2012). The other alternative of financing the equity and debt is the use of a bank loan whereby it enables the entrepreneurs to maintain their cash on hand, as they finance their equity and debts in order to survive in the period of the business. There is situation when the business experiences problems and the bank loans can contribute significantly in protection of personal assets and bankruptcy. Government grants are extremely beneficial to the entrepreneurs since the funding has not financial responsibility; thus, it can be an effective source of financing equity and debts. The government grants are associated with the benefits of being derived from the tax income that is having been paid by the seeker. Furthermore, the government grants offer a way of tapping the past tax payment for receiving debt-free funding from the government. Disadvantages of Each Form of Financing Available to Entrepreneurs On the other hand, personal saving as a way of financing has some disadvantages associated with the probability of losing money, whereby there is a drawback of plowing personal savings into a business venture with a probability of losing. Moreover, this places assets such as retirement accounts, which are safe from creditors and bankruptcy court at a significant risk that is not reasonable for the investor. The disadvantage of the bank loans as a form of financing debts and equity relates to the interest paid on loan, while other loans are associated with prepayment penalty, which prevents the borrowers from paying the notes early without extra cost. There are numerous limitations on the transaction, and there is a need for a satisfactory credit history in order to acquire a loan and stipulation on the money that can be used. Therefore, increased borrowing can cause a decrease in the cash flow and payment, which can overtake the income in some situations. The disadvantage of the government grants is associated with the strictness associated with spending limitations, whereby the government dictates the use of the funds, whereby the granters are checks the receipts regularly in order to ensure that funding is appropriate appropriated. Therefore, the grants become a burden to the entrepreneurs since they have to put at the most uses as possible according to expectations of the government. Steps Taken to Determine Which Financing Alternatives to Pursue On the initial steps applied by the entrepreneurs in determining, the financing alternative, to pursue is evaluating risk concerning the business venture. In this case, the company should take control of the business risk in level that is suitable for a certain form of financing; thus, there is a need to focus on the total risk, which entails the financial and business risk. The other step involves the focusing on the cash flow since debt financing is cheaper than the equity financing; thus, the entrepreneur may consider the obligation of paying the cash as interest, since failure to pay the interest can cause an action of winding up the business (Parrott, 2010). The other step relates to the control of debt that is raised, though if equity is raised the control is altered, since there is a need to recognize the rights issues that can result to a change in the rights of the investor. There is a need to determine the availability of finance in the situation of establishing the appropriate source of finance since the businesses may have trouble in raising equity, and the solution can be debt finance, which is cheaper than equity. Stage in the Entrepreneurial Process Where Equity Financing and Debt Financing are Most Appropriate At numerous stages in the business cycle, a need for external assistance may arise for supporting the business growth, and the requirement is usually the need for additional capital. Therefore, decision of determining when the business needs equity or debt financing depends on the choice of the entrepreneur concerning the form of financing to be used for fixing the problems. Moreover, there is a need to make the decision of seeking the equity capital or debt financing as an initial step in the process of acquiring the equity capital at an early stage, when the business has little real assets, while during the steady growth of the business, the business uses the debt financing. Conclusion In conclusion, the paper has explored issues related to debt and equity financing, whereby various alternatives of debt and equity financing are discussed. The advantages and disadvantages of these alternatives are discussed, and the steps involved in determining the financing to undertake are elaborated. Finally, the paper seeks to identify the stage at which the entrepreneur can find it appropriate to use debt and equity financing. References Angioni, M. (2008). Funding a new business: Using personal savings. Helium. Retrieved on November 11 2012 from< http://www.helium.com/items/845967-funding-a-new-business-how-to-make-the-most-of-personal-savings> Jennings, R. (2012). Sources of Finance and Their Advantages & Disadvantages. Chron. Retrieved on November 11 2012 from Parrott, W. (2010). Analysing the suitability of financing alternatives. ACCA. Retrieved on November 11 2012 from< http://www.accaglobal.com/content/dam/acca/global/PDF-students/2012s/sa_june11_alternatives.pdf> Read More