Sources of Finance

You want to set up your business, it's not bad. All right - but one big ques­tion: "Where are you going to get the capital?" Finding the capital is the biggest problem. The first thing to do is to estimate how much capital will be needed. What fixed assets will be needed? What current assets? The amount needed will depend upon the type of business.

There are a number of sources of capital. Owner's private savings are the most obvious source. Any future busi­nessman should have sufficient faith in his project to back it with his own money. If not, he can hardly expect others to risk their money. The advantage of an owner using his own money is that the business remains free of commitments to partners. It also means that all the profits will be his.

Capital can sometimes be obtained in the form of loans from friends, neigh­bors or relatives. One difficulty here is a friend or relative, though not keen to lend the money, may not like to refuse. Another disadvantage is that, with any business, there is always risk. This means that, if money is obtained in this way, the bor­rower may one day have to look the friend or relative in the face and tell him that all the money has been lost. And at last you may take loan from a bank. All com­mercial banks are involved in lending money to suitable business. A loan is usually for a fixed, clearly stated period. Interest is charged on the full amount of a loan. So, sources of finance for any businessman are different, but the problem of getting them is much more difficult. We wish every trader and buyer not to suffer money problems.