Financial Resources Needed For Operating A Business
Financial resources are funds specifically allocated for specific functions in a company. These resources can include mortgages, bank loans, government grants, and any other funding used for company purposes. When revenue falls short of meeting a business’s needs, cash flow has to come from alternative sources. Whether you turn to a government grant or bank loan as a means of obtaining the required financial resources, the process can be time-consuming.
Bank loans are the most common go-to solution for companies looking to borrow funds. Interest rates can be competitive and the loans are relatively easy to qualify for. In fact, most small businesses start out with a bank loan. Different banks will have different qualifications for borrowing the financial resources, and these may include presenting your company’s financial information and business plan.
Be sure to consider the funding source before deciding on one. While the process of obtaining a bank loan is fairly simple, traditional lenders require fixed monthly payments that begin immediately, which creates a negative cash flow right off the bat.
Another option is raising the needed funds through equity investors in the form of stock shares. These investors, or stockholders, become co-owners of the company, which limits risk, since they take on liability for parts of the business. While investors do not need to be paid back right away, they often require your business to show consistent growth over a certain period of time. If you can’t meet that type of income growth and prove your business was worth investing in, equity investors may abandon their investment and sell it off to someone else.
Corporate bonds or notes are another alternative for larger companies. These bonds act like small loans, but they are traded in the public market similarly to stocks. Purchasers of the bonds can negotiate the duration and yield terms, and the bonds can then be sold or held onto until they reach maturity. The downside to this source of financial resources is that you need multiple buyers of the bonds to produce the needed cash flow, and this can be tricky.
Business owners that don’t mind lengthy application processes should consider government-guaranteed bank loans and grants. The difference between government-guaranteed loans and traditional bank loans is that these do not require as much collateral, which is a better alternative for small and startup businesses. Find out more about this option, or any of the aforementioned options, through your local Small Business Administration (SBA) office.
