Business Financing:

Before entering into a business, the owner manager should be able to determine the capital needs of his business. Capital includes both money used to start the business and other credits from manufacturers, wholesalers and others. The two types of capital are working capital (operating) or (day to day running) and fixed capital, the owner must be able to raise enough of both if the business is to succeed.

Capital needs will however vary according to size and business objectives. All in all successful businesses must have enough working capital, enough managerial competence and they must meet a need that exists in the community.

Sources of Business Funds:

In operating the business, one needs sufficient finance for the following:

• Purchases
• Buy equipment
• Pay salaries          
• Pay expenses
• Buy premises          
• Incidental costs

The sources of these finances may be:

    1.    Funds (savings)
    2.    Family members       
    3.    Friends/associates

If the funds required are more than can be realised through equity, money is then borrowed. This additional fund is called DEBT-MONEY. There are many forms of debts money depending on.

•    The source (lender)
•    Maturity of the debt
•    How much and mode of repayment.

Debt money is either short-term (credits given for short periods by suppliers, wholesalers or bank overdrafts) or long-term (given by commercial lenders on production of security and to be bonded for some reasonably long period.

Sourcing For Funds:

Not all the sources of funds are good for all types of business. Before one can select a source of fund, there are certain areas that one must be very clear about.

(a) The conditions for borrowing imposed by the lender (Bank).

• Whether the bank needs security and what type of security. Does the business have the necessary security?
• Re-payment period. How long are the term of credit and how the monthly instalments are? Can the business comfortably meet these repayments?
• The interest rates (cost of money) and how they are likely to change and how they would affect the business if they did change.

(b) Know all the factors both internal and external that would affect the success of your business and how these factors are likely to change in the present and in the future.

(c) Must know about the environment of the business and especially of the lenders business and the movements that are likely to take place in the banking industry.

(d) The businessman must be able to evaluate his business competence to see whether it is in a position to meet the conditions and requirements of the lender.

(e) He must be able to evaluate and compare the amount of risk and the financing obligations taken on when the loan is given.