Business activities range from small-scale, medium, and large-scale businesses. In the current world, almost everyone looks forward to starting up a business. Businesses opportunities are so many, and they come at different times of the year. Some are worth investing at certain times while others are not. For this reason, there is a need to be prepared for the right opportunity. The greatest impediment why some just get an opportunity, but due to financial constraints, they set aside. Capital is what many people lack thus fail to progress in the business field. People with potential can venture into business with the aid of one of the following sources.
The most common source is the owner’s capital. Some individuals have been working and accumulating capital for quite some time and thus are able to raise some funds to set up a business. Some get these funds from a will left to them by their relatives, or money obtained because of redundancy payment. This has the benefit of not carrying any interest. However, the sum might not be large enough to finance a business, but is one of the contributions to the general development in business market. When you compare this with the other sources, it can be the most accessible to everyone since there are no interests attached to it. The only disadvantage is that one cannot win the trust of well-wishers especially in difficult situations, hence the business can fall anytime (Buckle et.al 158).
Retained profits are precisely sources that are used by businesses that are in existence. The gains from the business are usually used by the owners for private use or in some cases; they might decide to increase the business by ploughing back the profits. Small-scale businesses during their initial stages state clearly, what they want in business and thus strategies on how to grow. The owner in this case is the sole decision maker on what to do with the profits. Most a times, they use profits to buy equipments, stock or raw materials and optimistically make the business efficient and profitable in the future. This is a bit technical when compared to other sources because if the owner has no plans he/she can misuse the funds and when the business need extra sum, there is little or not available at all. (Wolfe 11).
Selling assets is also another source of finance to small-scale businesses. As the business grows, it builds up assets in the form of machinery, property, equipments, and logos. In some situations, it might be necessary for the firm to sell off some of the assets to assist in the development and expansion of other viable projects. This type of source might not be appropriate when funds are needed urgently. The owner has to find a suitable buyer of which it could take a lot of time. It is therefore, essential that this is only used when expanding the business or when a section of the business is does not conform to the initial strategy and direction of the business. In addition, small-scale business do not have enough resources to purchase big machineries or properties, thus when they want to sell they might only get little funds through selling of their small value assets. Comparing with the first sources, this might not satisfy all the needs of the business.
Bank loans are the most viable of all since different banks offer varied range of amount as per the customer specification and their credit worth. Banks are vital sources of long-term finances. The advantage of this is that they can lend whopping sum of money to organizations or even to trusted individuals for an exceedingly long period of up to 25 years or more. Within this period, the business will be supported, and thus able to grow remarkably fast. The loans however, attract interest rate depending on the standard rates set up by the bank of England. For businesses, applying bank loans can be a relief to the business owners, but the cost of servicing the loan can be a traumatizing experience. Increase in interest rates can add unnecessary cost to the business and should be taken into consideration during the strategic planning of the business (Wolfe 12).
Mortgage is the other source and is a loan directed to the purchase of property. Some firms in their plans to expand can decide to buy property through mortgage. Often mortgages are applied as a security for a loan and are applicable to small businesses. The borrower can use their private property to secure these loans. Despite the fact that these loans helps the business to grow fast because of accessibility to quick cash, its setback is that in case the business does not prosper, the bank has all rights to take the private property and sell it at whatever cost to reclaim their funds. Using a mortgage is a common source of raising funds but it has many risks in case of default. The other advantage of this type over the others is that the mortgage firms can assist one in the development of the structure
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