How Can Entrepreneurs Finance Their Business Without Resorting to a Debt Consolidation Loan?

Establishing a startup business is never an easy task to accomplish for any young entrepreneur. You need to overcome numerous hurdles before commencing commercial operations. One of the most important is being able to arrange the money to finance your concern. You may be of the opinion that bootstrapping is your best course of action. However, it is very unlikely you’ll get the cash you need. Industry experts say at some point you have got to knock on the doors of potential investors. They are ones who can give you the funds you require. However, you have got to agree to their terms and conditions. In such a situation, you have got to make a choice. You could issue them your company’s shares or take loans from such financiers.  

Why are entrepreneurs generally reluctant to issue shares of their company to potential investors?

Such professionals say many young entrepreneurs are reluctant to issues shares to potential investors. One of their biggest concerns is that they lose full ownership and control of their establishments. This is the last thing these businessmen want. After all, the main reason they took this path is to be their own boss. These proprietors don’t want to lose this independence.

Moreover, they are always willing to accept the consequences of their actions. However, this not the case when they issue shares of their company to their investors. Before taking any important decision, they need to takes these financiers into confidence. After all, they have now become co-owners. For many of these entrepreneurs, this can be a tall order.

What do entrepreneurs need to consider when using debt as an investment option

These industry specialists further point out that the next best option open to entrepreneurs is debt financing. Such investment schemes can range from a conventional bank loan to SBA assistance. Not all of them are going to meet their specific requirements. In deciding which one is ideal for their businesses, they consider the following five important factors:

           1. Capital requirements

Entrepreneurs need first to determine how much money they need to rise to establish their business. They shouldn’t rely entirely on debt for their concern’s capital requirements. Making this mistake can turn out to be disastrous for them in the long-run. Experts say a proper balance of equity and debt funds is ideal for them. Many of these businessmen do raise a certain amount through bootstrapping. This could include their personal savings and the cash people who know them give. This sum represents their equity in the establishment. For the balance amount, they should scout around from financiers who can provide them with loans.

           2. Collateral

This is another important consideration which entrepreneurs need to consider when opting for debt financing. Almost financiers are generally willing to sanction loans to such businessmen if they provide sufficient collateral. In simple terms, it refers to a group of assets which are acceptable to such lenders. They first evaluate their cost or present market value. Only then do they decide amount they are willing to provide such businessmen. Banks generally retain a margin of 20% in the case of real estate and equipment. However, in the cases of inventory or accounts receivables, this percentage is extended to 50%.

           3. Conditions

Experts from Nationaldebtrelief.com, a reputed name in debt relief say that all financiers have their own conditions. This is over, and above the collateral, such lenders ask entrepreneurs to provide. These business owners have got to fulfill such stringent eligibility criteria. Otherwise, it is very unlikely they’ll get the money they require. Banks and other similar institutions lay down such guidelines for a reason. It is to safeguard their establishments from potential losses. After all, they are taking a risk in lending out such money. In certain situations, the officials of such organization may offer such proprietors some leniency. They could agree to enter into debt consolidation loan agreements with such owners in case of defaults. However, it is a long and tedious process.

           4. Creditworthiness

This is a very important aspect which almost financiers are not willing to compromise on. These lenders go to great lengths to assess the creditworthiness of entrepreneurs who approach them. It is to safeguard their own interests. They expect these businessmen to have an impressive track-record of repaying their dues on time. At the end of their day, such investors expect to get adequate returns on the amount they lend.  Many of them thoroughly scrutinize the credit report of such proprietors. If such lenders find any discrepancies or indelible marks on it, they’ll refuse to provide such funds. They are within their rights to take this course of action.

           5. Cash flow

This is another factor which potential financiers generally don’t overlook. In the course of conducting their activities, entrepreneurs need to prove something.  They have the ability to maintain the adequate sum of money at their disposal. Such resources should be available after paying off important expenses and making necessary provisions and network marketing. These include depreciation on assets, amortization, interest payments and providing for taxes.

In some cases, they may have to keep aside certain such for distribution and maintaining capital assets. Lenders then compare the amount which remains to the debt payment these businessmen are likely to incur. It should be 1.2 times the interest they’ll charge for funds they are going to provide to such owners. Only them do they seriously consider provide the proprietors with the sums of money they ask for.

Debt financing can work wonders for entrepreneurs. They can get the money they require for running their businesses. In the process, they can still take their own decisions on how they wish to conduct their market operations. After all, they still retain full control and ownership of their own establishment. However, these businessmen need to realize that such funds don’t come cheap. They have got to meet the guidelines their financiers lay down for proving the money. On top of this, these owners have to keep in mind the above five important factors. Only then they can make the right decision taking into account their best interests.