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Financing a Small Business - Research Paper Example

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The footprint of man on this planet is now taking its toll on man himself. This shows up in the form of so many social and political problems that the entire world is facing today. Global economic recession is just the beginning, this is suspected to lead to scarcer resources and hence wars…
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Financing a Small Business
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Download file to see previous pages Luckily, there are still many ways which a smart and proactive person can use to make his living. Something which is better than his previous job infact. This is to start his own business. One might ask why anyone would want to start his own business and go through such a huge risk of investing so much and finding out in the end that it was all a bad idea and loses all his money. Well the answer is already given above. But apart from not having any other choice, it is wrong by many people to consider a business as a "risky investment" because a business is as secure as you want it to be. If you start out with a stupid idea which only you believe is going to sell, well then you will lose your money. On the other hand, if you value your investment a lot and do not want to take big risks, you can start something simple like a general or medical store. This type of business will give you lesser profit but it will be stable and will involve routine supply chain techniques which will therefore lowering the risk to a minimum.
Now comes the most crucial part, one which actually makes a person decide on his destiny. It's how to finance his business. The first thing a person needs to answer is how much investment is he going to need. If his business plan is well defined and thoroughly covers the default five year plan technique, he will know exactly how much he will need in order to get it started. He will also know in how much time he will be able to reach break-even for his investment therefore answering his second query of repayment of his installments. There are several ways a person can finance his business, for the purpose of simplicity, we will discuss three of the most common ways which are used by small businessmen and even by big multinational giants (James E. Burk, Richard P. Lehman, 2006).
Personal Credit
This technique is primarily designed for small businessmen deciding on opening a low risk and stable earning platform. This is because as the name suggests, the businessman will borrow money from his personal contacts either by formal or informal agreements. These personal contacts are usually family members who come in the businessman's trust circle like his parents and siblings. This is the safest way of acquiring money for investment because there is a lot of flexibility involved in the process. Also, the business man will be more careful of investing it wisely as his share is the highest in the whole investment and he cannot gamble with it too much.
Upon interview of selected people on whether they would lend money to a close relative, the answers received were highly unexpected. 80% of people interviewed said they were not comfortable in lending their hard earned money as they were not sure if they would be able to get it back once they lend it. On the other hand, people also said that they would not like to ask their family members for help as they do not want to parade about the fact that they are starting a business as they might become prey to extreme jealousy.
Bank Loan
This technique is the most common used in the business world today. Even banks offer special packages to customers seeking money for investing in their own small business which are good because they have lower markups and they are granted more easily thanks to governmental ...Download file to see next pagesRead More
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