Funding Sources within Upcoming Entrepreneurs - Research Paper Example

Funding Sources within Upcoming Entrepreneurs Introduction According to Talloo, pp. 23, for the proper economic and industrial development to realize within any given environment, adequate business organizations must exist to trigger the process. These businesses may exist in the form of ownership under the public sector or private sector depending on the governance of the organizations. In the absence of enough business organizations to facilitate the development, there exists the emergence of upcoming entrepreneurs, especially for businesses. This is the scenario where there emerge various businesspersons who are willing to start their own businesses for the purpose of providing better services to the people, which in the process results to better profit realization. Consequently, in the process of starting a new business organization, entrepreneurs should make sure they consider and meet various factors such as capital, labor and better management in order to avoid the collapse of the organization at its early stages. Moreover, the emergence of these business organizations are helpful as they results to the creation of job opportunities within the given environment, therefore, they should be encouraged. Thesis Based on the development of new businesses, this paper provides the three types of funding sources that an entrepreneur should considers during capital generation, some of the merits of the provided funding sources and their disadvantages. It also provides some of the factors that the lender should consider in the borrower and some of the ways in which the information need to be presented to the lender. The research paper also provides some of the procedures that need to be followed in future in during the process of entrepreneurial endeavor and some of the ways in which entrepreneurs may manage to start their own businesses. Moreover, the paper provides descriptions on the some Small Business Administration loan trends and some of the types of business receiving the loans. In addition, it describes the three Small Business Administration success and their applications in the current business world and the surety whether Small Business Administration loans could be accessed in the future for the upcoming entrepreneurs. Question 1: Types of Funding Sources to Entrepreneurs During the process of coming up with a business organization, there are various factors that an entrepreneur should consider for the success of the business to be achieved. One of the main factors to be looked at is the capital for starting the proposed business. Therefore, there are three main types of funding sources that an entrepreneur should consider in the process of generating capital for starting a business. These include: Debt Financing Through the process of debt financing, an entrepreneur is required to apply for loans from various financial institutions such as banks and non-government institutions. Therefore, before an organization decide to borrow money from these institutions, the need to consider the lending process, interest provided and the period in which the organization is required to settle all their debts. If the information provided by the banks complies with the situation of the business, the entrepreneur needs to apply for the loans (Viramgami 178). On the other hand, for the bank organization to strike the deal with the organization they need to consider the cash flow of the organization and the security that the proposed organization provides against the loan provided. Grants This is the process whereby various entrepreneurs become part of some of the government agencies within their respective countries. For instance, in the United States, most of their new entrepreneurs who are willing to start small businesses become members of the Small Business Administration, which is part of the Small Business Innovation Research programs (Talloo, 78). Therefore, in the process of becoming part of these government organizations, these people are in the position of getting help from the government financially, hence, acting as one of the sources in for funding sources to most upcoming business organizations. Equity Financing In most cases, various organizations depend on private investors within their organizations in exchange for their equity. Therefore, these include donations from friends and families to professional investors. In the process of receiving financial support from friends and families, they need to be very careful as it may affect the operation of the organization in terms of its development (Tirole 267). This is important because most of the family members may participate in capital provision in mind that they will get more from the business, which may affect the operation of the business in the long run. Consequently, some of the investors such as Angle investors, Venture capitals and Strategic investors need to be considered during equity financing. Question 2: Advantages of the Types of Funding Sources As required, it is good for entrepreneurs to consider some of the benefits of the funding sources to be used by the proposed organization towards the generation of the capital for starting the business. For instance, one of the advantages of debt financing is that entrepreneurs are not required to give up the equity during the process of seeking financial help. Moreover, the process is easy making it to be more available process for most upcoming businesses that are unable to get their equity funding (Talloo 97). When seeking financial help through grants as a funding source, it is important because it provide free money to the entrepreneurs as they are provided by the government in mind that they will help in the process of job creation and future development. In addition, through the use of grants process of acquiring capital, the source provides leverage, which is of beneficial to investors. On the other hand, through the use of equity financing, there are various advantages that the entrepreneurs enjoy. For instance, the process is convenience, they are quickly available, and there are lesser contractual strings attached. Question 3: Disadvantages of the Types of Funding Sources On the other hand, there are some of the disadvantages of the above funding sources. For instance, through the use of debt financing, investors are required to pay interest in order to get the financial help. Failure to do so, they will fail to access the information. They have limited networking. Moreover, the process requires personal collaterals during the process. In the use of grants as the process of capital generation, some of the disadvantages that most organizations may face include strict guidelines for using the funds, which the organization must adhered to for them to continue enjoying the service. In addition, the process is more competitive, hence, attracts many organizations that results to fewer benefits. Furthermore, in the use of equity financing, some of the disadvantages that businesses may face include are that they are difficult to find, and they need sharing and giving up of controls by the businesses (Viramgami, 156). Therefore, all these demerits must be looked at by the entrepreneurs in the process of seeking funds for the upcoming business in order for the best method to be realized. Question 4: Factors that a Lender Should Look for in a Borrower During the process when a lender needs to get financial help from the borrower, there are some of the factors that the lender should consider. For instance, the lender should consider the net worth of the borrower. This can be determined through the subtraction of the liabilities from the assets in order for the lender to know the value of the borrower. This can also be determining through financial statements of the borrower. Through the information provided from these documents, the lender will now decide if the borrower is worthy to be depending on for the transaction to be reached (Kuratko and Hodgetts 211). Another factor that the lender should consider is the liquidity of the borrower. This is determined through the pre and post-funding liquidities. Therefore, it is important for the stability of the liquidity to be 10% of the loan amount. Moreover, another factor to be considered is the ownership experience, where the borrower shows the capability and potential of involving in better decision and management skills towards the business for the generation of the cash for the business. This is important because it will help the business to settle its debts. Question 5: Steps Needed in the Planning for the Future Entrepreneurial Endeavor For any businessperson to start their own business, they need to prepare well for the process. For instance, entrepreneurs need to propose better business and be able to calculate the starting capital required (Tirole 346). They need to come up with the best method for funding their business. After getting the capita, they need to provide better management that will allow the organization to operate as planned. During their management, they should have passion and positive attitude towards their businesses. Therefore, by abide by these norms and procedures in the future, these investors will have easy time in starting their proposed businesses. Question 5: Types of Small Business Administration Loan Trends One of the most common loan trends applied by most of the entrepreneurs through the Small Business Administration is the Online lending methods of borrowing. Due to the increase development in technology, most of the organizations that seek financial support from the available financial institutions nowadays prefer online method of borrowing methods. This method is better because it saves time and other spending that could be used through the manual system of providing same services (Kuratko and Hodgetts, 412). Another lending trend that most organizations depend on is the alternative lenders such as the micro lenders that provide financial help to most small businesses. Most of the upcoming businesses use this method because it is cheap to acquire as compared to other methods of lending. Question 6: Existed of the Small Business Administration Loans in the Future Due to various important aspects of the Small Business Administration loans to most upcoming business organizations future of small business administration is still guaranteed. This is because it provides help to new entrepreneurs in making their businesses effective (Viramgami 207). Moreover, it prevents other existing businesses from collapsing as it provides financial assistance to them. Works Cited Kuratko, Donald, F., and Richard M. Hodgetts. Entrepreneurship: Theory, Process, Practice. Cengage Learning. 2008. Print. Talloo. Business Organization & Management. Tata McGraw-Hill Education. 2007. Print Tirole, Jean. The Theory of Corporate Finance. Princeton University Press. 2009. Print Viramgami, Hitesh, S. Fundamentals of Entrepreneurship. APH Publishing. 2007. Print Read More