STARTING a business can be a daunting task. After all, you’re investing your valuable time and money into a venture that could succeed or fail. The first step to succeeding in business is choosing the right idea. From there, you can develop the vision and structure of your business, learn how to market your product or service and pay attention to both your customers and your competition. You want to make sales, but you also need to focus on the logistics of setting up your business, securing the funding you need, and understanding tax codes. In this comprehensive guide, Geary Reid offers essential information covering all these topics to help you set up your business for success.

1. Sourcing Financing
One of the biggest challenges start-up businesses face is access to financing. Many people have great ideas but lack the money to start a business, so their ideas remain in their minds or on the shelf.

People often complain that they want to start a business but are required to provide equity. The proportion of equity varies from bank to bank, and even the amount requested by the bank may be beyond the reach of the business owner.

Since many owners of start-up businesses do not have the funds required, they must rely on external sources of financing. Unfortunately, responses from both individuals and financial institutions are not always encouraging.

1.1 Who can entrepreneurs borrow from?
The question of where to borrow from often arises. Owners of start-up businesses frequently need additional financing, whether through savings or borrowing from financial institutions, so that the bank assumes the risk of financing their business. Therefore, an ordinary person should not be afraid to seek financing.

Never hesitate to seek financing if the need arises. Do not let your business idea die because you are afraid to ask. Borrowing is not a crime, but failing to repay a loan is.
Family members and friends can be a valuable source of financing, especially if the amount needed is small and they support your business. It is always better to ask and be told no than to assume they will refuse. However, before considering borrowing money from someone, you must have a good relationship with them. Trust is key, and relationships should not be established overnight for the purpose of borrowing money.
Never ruin good relationships by failing to repay loans from friends and family. You never know when you may need to borrow from them again.
Many countries have small-business bureaus that assist entrepreneurs. These bureaus may offer guidance to small businesses, and since many new business owners lack financial management skills, small-business agencies can provide training and help them navigate the process. However, these lending agencies may have restrictions on financing amounts, and their repayment periods may be shorter than those offered by commercial financial institutions.

Commercial financial institutions also provide loans for businesses and individuals. However, borrowing requirements from commercial institutions are often stricter, particularly for first-time borrowers. Interest rates charged by commercial banks are typically higher than those from small-business agencies.

1.2 How much should entrepreneurs borrow?
Borrowing can be intimidating, and many entrepreneurs are unsure how much to request. Typically, the amount provided by a lending agency matches the estimates or budget submitted. Therefore, it is essential to clearly state the amount required to establish the business, along with funds to cover a few months of operations.

If you have extra funds available, you may use them as a financial cushion for the business and avoid borrowing additional money. However, borrowed funds must be used strictly for their intended purpose. Some individuals are eager to borrow but end up using the funds for reasons unrelated to their business.

When borrowing, request an amount you are comfortable repaying. Do not take out a loan simply because a financial institution is willing to provide the funds. Lending institutions may offer large sums because they benefit from interest payments, but borrowing more than you need can lead to repayment difficulties and, ultimately, put your business at risk.

1.3 When should entrepreneurs borrow?
Timing is a crucial factor in borrowing since interest is calculated from the date the loan is issued. If money is borrowed too early but remains unused, the borrower may need to use part of the principal to repay the loan. Ideally, positive cash flow from the business—not the loan itself—should be used to make repayments.

If funds can be borrowed and put to use immediately, that is a good strategy. Money should not sit idle, as interest accrues daily and can create financial strain for the borrower.

1.4 What is the payback period?
Before taking a loan, entrepreneurs must determine a reasonable payback period. Financial institutions often suggest repayment timelines, but business owners should carefully assess whether the proposed period is feasible.

Some lending institutions have fixed repayment schedules that cannot be adjusted. In such cases, business owners must ensure they can meet the repayment obligations within the given timeframe.

Shorter repayment periods can be challenging, especially if the business does not generate sufficient cash inflows quickly. However, at the same interest rate, a shorter repayment period results in lower overall interest costs, making the loan less expensive in the long run.

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