Financing A New Small Business

In this second article on finance we’re going to shift our focus
to money, banking and investments Again, I thank my associate
for enlightening me on this subject You can really lose your
shirt if you don’t know what you’re doing
Everyone dreams of getting rich someday Unfortunately, getting
rich isn’t as easy as waving a magic wand Unless you’re
extremely lucky at picking winning lottery numbers, getting rich
takes time, lots of it Of course the more shrewd you are at
investing, the quicker the riches may come but even then it’s no
guarantee
For every financial risk there is a financial reward that goes
with it The higher the risk, the higher the reward
Let’s start with some low risk financing You want to start a
business You have very little collateral So you go to a bank
and apply for a small business loan If you at least have good
credit you’ve got a pretty decent shot at getting one The loan
rate will vary according to the prime interest rate Small
business finance packages can run from $75,000 to $5 million At
the time of this article the prime rate is 481% The business
loan will probably have a rate about 2 or 3 points higher at
around 7 or 8% There was a time that 8% was an excellent rate,
back in the 70’s when interest rates were double digits But now
interest rates are starting to climb again so 8% is just okay
Of course you can try some high risk financing alternatives
This will bring you a higher return sooner to finance your
business but you can also lose your shirt doing it
What many people do is what we call leveraging This is the
practice of taking borrowed funds and investing them in a high
risk stock hoping that this will yield a higher return so that
they can finance their business with the profit and pay off the
original loan at the same time This way the money put into the
business is all theirs and they don’t have to worry about
defaulting on the loan
The problem with this practice is if the stock or stocks tank,
then you’ve lost more money than you would have, can’t pay back
the original loan and can’t invest in your business so that you
can make the money to pay it back
Most people who practice leveraging invest in a number of
different stocks, bonds and mutual funds in order to minimize
the risk to some degree Still, this is a very risky practice
and if not done correctly you can lose your shirt
Another thing some people do is get private investors to sink
money into shares in their company to be These are people
themselves who are usually willing to take a risk on a new
venture if they think they can get a good return By doing this,
you essentially are taking no risk at all If the company tanks
it’s the investors who are out their money Of course some of
them may not be too happy about this so getting an unlisted
number and address may not be a bad idea
There are many ways to get capital for a new business Some
easy, some not so easy Make sure you choose the option that’s
right for you and won’t land you in a situation where you have
to be put in witness protection

Tags | business, collateral, digits, financial, financing, loan, packages, prime, stocks