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How to Borrow Money, Part 2
Debt Financing
Debt financing means borrowing money that must be paid back over a period of time, usually with interest. It can be a short-term: less than a year and a long-term more that a year. You do not relinquish any ownership rights by taking a loan and limited by obligation of paying a loan back with interest. This is why loan for new businesses usually secured by one or more of the following: owners personal guarantee, real estate, company assets, etc.
The disadvantage comparing to the equity financing is that you must make scheduled payments regardless of your companys financial situation.
Debt sources can be divided into two groups: non-professional such us relatives, friends, and employees, etc. and professional such as banks, credit unions, etc.
Financial Institutions, by themselves, traditionally provide short term financing for small and mid size businesses: line of credit, equipment loan, etc. Long term loans in many cases guaranteed by the Small Business Administration loan program that helps leverage out risk for financial institutions.
There are some pros and cons in both Equity and Debt Financing. The best capital structure will depend on many different factors. For more sophisticated cases I suggest to hire a seasoned Financial Consultant.
Points the borrower usually evaluates before you giving the money:
1. How good is your credit history
2. Do you a solid collateral
3. Will you be able to repay the loan
4. Does your management team have enough management experience
Your personal financial situation while starting a business
It is always a good idea to build your personal credit history. In the beginning your business does not have any credit history and lender will use your personal data to evaluate a loan terms. Order you personal report to see where you stand and check it for any unexpected errors.
Work with your personal budget. You need to understand that usually you will not be able to take any cash from new business for a while. Make sure that you have enough money to start you business venture and enough money to pay you bills until business will become cash producing.
Put together projections and classify your future business expenses. Some of the expenses will be one-time costs such as the fee for incorporating your business; some will be ongoing such as inventory, insurance, etc.
There are two types of expenses: variable such as inventory, sales commission, etc. and fixed such as rent, utilities, etc. If you feel that you do not have enough expertise to do budgeting and forecasting it might be a good idea to hire a professional to do that.
Yury Iofe, MBA
Universal Business Structured Solution
More educational resources by Yury Iofe:
www.ubssolution.com
Educational Free Grants for Military Dependents
If you’re currently working on getting your college degree than you know how financially difficult it is. You’re classes take up a good chunk of your week, then you need the remaining time for studying. The good news is that if you qualify you can get free grants for military dependents.
Of course it pretty much goes without saying that some member of your family must be active duty or retired military, but it applies to all branches of the service. Also it need not necessarily be a mother or father. It can be your brother or sister.
Would you believe that there’s a free drawing for $10,000 each and every moth of the year? Of course being that it is a drawing, you’re not guaranteed to receive it. However; if your name is drawn, that’s a heck of a lot of money.
Also just like pretty much all other types of educational grants, you can register on the Internet. Another thing to bear in mind is that unlike student loans, grants don’t have to be paid back. They’re meant to be used for tuition books etc.
Of course you won’t want to stop after you apply for this one particular funding gift, so just keep on going and apply for as many as you can. Also what you may not know, is that there are any number of grants that are made available by private non governmental entities.
You will need to get ready to do some research if you want to know about all of them but don’t just look online. One other good place to check for information on free grants for your college education is at the school counselors office. Also do remember that it sure does help if you’re getting good grades and also carrying a full 12 unit load or more of classes.
How Much Can You Qualify For?
Out of the many programs available, one of the most popular is a drawing for a $10,000 Free Military Scholarship. This is drawn each month, and there is not much competition, so you have a much better chance than in other scholarship programs not geared towards military dependents. This is in contrast to programs that accept anywhere from ten thousand to a million applicants, and pick only one.
When you register on the web, you receive a confirmation email that you respond to, to let us know you actually exist. You are then entered into the drawing, automatically.
What Is Scholarship Money Used For?
In contrast to a loan, scholarships do not have to be paid back. Loans will gain interest while you are in school, and after you graduate as well, until you have paid every penny. Scholarships are free money that can be used for any education-related expense, given as a thank-you for the sacrifice that military dependents make. Once tuition is paid, you will have to purchase books, then pay for gas to get to college, then unexpected things will most assuredly come up. This you can pay for with a $10,000 free scholarship.