Financing is needed to start a business and upgrade it to profitability. There are several sources for start-up financing. One should consider the amount of capital needed and when it is needed. The financial needs of a business differ depending on its type and size. This paper focuses on the sources of funding in businesses.
Debt
and equity is significant sources of financing. Government grants for certain
aspects of a business are optional, and in specific communities, incentives are
easy to locate.
The
finest mix of debt and equity needed to fund a beginner firm will comprise
equity funds (which assure returns over long duration) and debt funds
(reliable when the market is unstable). The latter gives a steady return in
constant range and has lesser risks. In taxes, the long term equity funds are
exempted from capital gain tax due to flat-rate taxation. (Staniewski,
Szopinski, Awruk 2108-2112)
Debt
funds are preferable when funding a firm. They invest in risk-free government
corporate bonds. Equity funding is risky due to its unstable nature and
sensitivity to economic factors (Rompotis n.p). Nevertheless, Equity
funds are best for non-risk disinclined and long-term investors. They enable investors to benefit from the unpredictable nature of the market; their funds lack predefined maturity date and can be redeemed at any time. The absence of a lock-in period facilitates the fluid nature of the fund. Since most funds are actively managed, investors can take advantage of the expertise and knowledge of the manager.
Retained
earnings and trade credit are appropriate sources of funding for a person with
a smaller business. Those with more substantial businesses, term loans, bonds, and
external equity are excellent sources.
Finally,
the funding sources’ choice depends on one’s nature of business and
accessibility to the financial market and the development of the bank. However,
a partnership with these funding sources would benefit a firm.