Why Capital is Required to Entrepreneurs?
Business are primarily done for the sake to earn profit and secondly to satisfy the demand other customer, both the objective are reciprocal of each other because of the business does not fulfill the demands of the customer then it could never be able to earn profits and if it could be able to fulfill the demands of the customers then sometime positively the entrepreneur has to raise the capital in the business to med the market ends by fulfilling the demands and supplied of the market to balance the business activities but it is more difficult for the entrepreneur to raise capital at the eleventh hour, therefore, he has to evaluate the business position in all the respect and as well as the market conditions.
- At Increasing the Volume of Sale and Production: When the sales and the production demands rise from the limits and volume of capital already invested in the business then the business require more capital to compete the market and production demands. This is a positive trend for the raising of business capital because in such trends the profits of the business increase.
- When Launching a New Product or Brand: According to Boston Consulting Group when an organization introduced a new product in the market at such a situation it has to be introduced in the market and the same should be familiar to the interested groups of the market, such product at this step is the question mark in the market because at such situation it has to gain the acceptance of the customers. This is the losing stage of new brand until it attain the acceptance of the market stakeholders and therefore, in such circumstances the organization or concern need capital for the proper launching, marketing and publicity of the brand that at an early stage as much as it could possibly be introduced to more and more stakeholders.
- Commencing New Project: It is a good step for all the businesses when the business achieve its settled goals and objective and go for a new one but in the same time this is the situation when the same business is going to take a risk of new project whether such project is in connection to the last project or is new project according to the market situation and demands. At such a stage, the organization is of the need to plan and arrange funds to meet the requirements of the project, so that the project could be started in time and the objectives, so predicted could be achieved.
- Sudden Loss: Sudden loss is the situation which some time complete ruin the business activities and sometimes require more capital to survive in the market. Such losses often happen in uncertainties or natural uncertainties such as earth quite, storms, economical crisis, death of the partner and etc.
In all the above referred situation a business require capital, sometime such demand is for prosperity and progress of the concern but on the other hand sometimes it is for to survive in the market, therefore, every business strategy when it is prepare it is prepared the prosperous happening but by neglecting uncertainties, that’s why such loss are called sudden losses.
Funding Options to Raise Capital for Startup Business
The main element which is the basic need of every business is the financial resources available with the entrepreneurs for the commencement of the business, with the passage of time and by the growing of the concern these requirements changed and increased consistently to the business situations. At the eleventh hours it is more difficult for the entrepreneur to obtain those resources therefore, the entrepreneur has to increase the capital if he posses the funds otherwise he has to raise funds as loans from friends or alternately has to secure loans and finances from the banks.
Managing of funds from Asset Management
When the business required capital then first of all the management of the business observe and evaluate the position of the business that how they can generate funds and the first step which the management take for the managing of the funds or raising the capital is asset management. It is a crucial process for the management of funds because it creates more liabilities and requires more calculation of the facts and availabilities with the organization.
Equity Financing
Equity financing means the capital which the owner of the business invests in the business at starting stage. Equity is capital invested in a business by its owner and it is “at risk” on permanent basis. Equity finance does not require collateral and offers the investor some form of ownership position in the venture. All ventures have some equity, as all ventures are owned by some person or institution. Although the owner sometimes not be directly involved that is provided by the owner. The liabilities in respect of equity financing vary in lieu of the amount of equity as well as in regard of the size and nature of the concern. Generally capital or the equity may be fully invested by the entrepreneur such as educational institution or food places. Ventures of multiple levers require more than one entrepreneur which also include and consist on private stakeholders or venture equity introduced by the entrepreneurs. Equity is generally on debt financing basis which in consistency make the capital base of the venture.
Debt Financing
Debt financing is also called asset-based financing. Debt financing is financing method involving a bearing instrument, usually a loan debt financing require the entrepreneur to pay back the amount of funds borrowed as well fee expressed in terms of the interest rate. Short term debt (less than one year), the money is usually used to provide working capital to final inventory, account receivable, or the operation of the business. The funds are typically repaid from resulting sales and profits during the year. Long term debt (lasting more than one year) is frequently used to purchase some asset such as machinery, land, building or vehicle. The entrepreneur needs to be careful that the debt is not so large that regular interest payment becoming difficult. Small enterprises have fewer choices than large firms for obtaining debt financing. They are excluded from financial resources such as money raised through the sale of bonds, debenture and commercial paper.
Commercial banks provide unsecured and secured loans. An unsecured loan is personal or signature loan that grant on the basis of business strength and reputation. Unsecured loan are usually small loan but they can be quite useful for meeting emergency cash flow requirement such as paying wages or bills. Unsecured signature loan usually must be paid back with in year and they will have high interest charges. Entrepreneur also establish personal “lines of credit” through their banks and these are treated in the same way as credit card account that must be paid down or cleared each month. Secured loan are those with security pledge to the bank as assurance that the loan will be paid. There are to many types of security will consider, such as guarantor, another credit worthy person or company that agree to pay the loan in the vent the borrower default but the most security is in the form of tangible assets pledged as collateral.