Another General Type Of Financing Is Debt Financing

Category: Finance.

Money is of extreme importance nowadays. The same is true. if one wants to venture into business or buy a home. which is one of the basic needs for survival.

Almost. everything that we do involves money. Financing. or supplying of funds in business is a must to make it. grow and achieve the desired expected profit( together. with the right planning and managing) . These problems however can. be prevented by careful planning and analysis of the. various factors involved in starting a business. Common mistakes. encountered by new entrepreneurs are wrong financing. sources, underestimated amount needed for capital and. inflexible financing types. In general, business people can choose from the two. types of financing, the debt and equity financing. The sources for this type. involves the center of influence that trusts the. entrepreneur, relatives, such as friends, family. members and other people interested in investing their. money in the business.

Equity financing is the type commonly used by small or. growth stage entrepreneurs. However there are also. capitalists who are ready to take the risk of financing. small businesses. There are also. venture capitalists that finance new business in the. industry to get equity. These capitalists may include. financial institutions, authorized government agencies. or well- to- do individuals in society. Businesses that have been in. the industry from three to five years are preferred by. venture capitalists. They can influence the. decision making policies of the business in the event. its performance does not come up with the expected. result. They have various methods to. manage or deal with the businesses that use their. financing or invested money.

Another general type of financing is debt financing. Business Administration Loans, commercial loans through. banks and personal loans from family, relatives and. friends. This type has varied sources which include Small. The government recognizes the importance of. business in the economy of the country and that is why. they offer programs that can encourage the growth of. small enterprise by having their own financing agencies. tp help a lot of young business people and. entrepreneurs. The banks act as. a short term lender for the business person to have the. needed money to buy equipment and machineries necessary. for the business to flourish. Debt financing through banks is the. traditional means to fund a business. The SBA or Small Business.

The loan that can be acquired can be from$ 5, 000. to$ 2, 000, 00 From these two general types of financing branch the. various kinds of financing involved- not just in. business but in other fields as well. Administration Loans are used in the case of local. banks. A few of which. are piggyback financing, owner financing and creative. financing. Through piggyback financing, the. borrower can have two mortgages with costs that may. vary. Piggyback financing is used by home buyers. who want to avoid mortgage insurance which is required. when the mortgage is more than 80 percent of the. purchase price. Owner financing happens when the owner or seller. of the property is the one financing the buyer so in. this case the owner acts as the bank.

Creative financing happens when the house. buyer has a third party lending institution which can. be a bank or a loan agency. The buyer in turn. can pay the needed amount monthly or whatever may be. the agreement instead of going to the bank for. financing.