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SOURCES OF BUSINESS FINANCE

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 SOURCES OF BUSINESS FINANCE

BY

SADAT IBN ADAM

DEPARTMENT OF BUSINESS ADMINISTRATION

FACULTY OF MANAGEMENT SCIENCES

USMANU DANFODIYO UNIVERSITY, SOKOTO

MOBILE NO: +2348036470699 or +2348183843120

Email Address:[email protected]

1
INTRODUCTION

Business is concerned with the production and distribution of goods and services for the
satisfaction of needs of society. For carrying out various activities, business requires money.
Finance therefore, constitutes a major bone in the rapid growth and survival of any business.
Business finance refers to money and credit employed in the business which involves
procurement and utilization of funds so that business may be able to carry out their operations
effectively and efficiently. Financing generally appears to be a crucial issue in determining
whether a business should be set up or not. Business doesn’t only require finance for initial take-
off, but also needs adequate funds to operate and expand effectively. Therefore, the issue of
finance and its adequacy are major areas of concern to any entrepreneur.
The method of financing business depends on the nature or form of business in operation. A
financing option that is open to one form of business may not be suitable for another. This is due
to the fact that businesses differ in terms of capital requirement and resources utilization. This by
implication means that the type and size of the business determine the financing need of that
business. For example, process businesses are usually capital intensive requiring large amount of
capital compared to a retail business which usually requires less capital (Don, 2013).

The bottom line remains that knowledge of the various sources from where funds can be
procured remains fundamental and strategic to business owners. In addition to that, knowledge of
the advantages and limitations of the various sources, as well as the factors that determine the
choice of suitability of a business finance; are equally crucial so that choice of appropriate source
can be made to achieve the business objectives.

However, sources of finance can be classified into three. It could be on the basis of period,
ownership or sources of generation. The different sources of funds base on period can be
categorized into three parts; long-term sources, medium term sources as well as short-term
sources. The long term source fulfils the financial requirement of a business for a period
exceeding five (5) years. Such financing is generally required for the acquisition of fixed assets
such as equipment, plant, etc. The medium sources of financing is one that funds are required for
a period more than one (1) year but less than five (5) years (Horne,2002).While the short term

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financing refers to financing originally scheduled for repayment within one (1) year
(Aminu,2003) . These funds typically are used to replenish the working capital account to
finance the purchase of more inventories, boost output, finance credit sales to customers, or take
advantage of cash discounts. As a result, an entrepreneur repays the loan after converting
inventory and receivables into cash

On the basis of ownership, the sources can be classified into owners’ funds and borrowed funds.
Owners’ funds remain invested in the business for a longer duration and are required to be
refunded during the life period of the business. While the borrowed funds on the other hand
refers to funds raised through loans or borrowings from commercial banks, loans from financial
institutions, among others for a specific period, on certain terms and conditions and are expected
to be repaid after the life span of the loan (Horne,2002). Sources of fund on the basis of
generation looks at the medium through which the funds come from. It could be within or
outside the organization i.e. internal or external sources.

Moreover, debt and equity are the two major sources of financing (Don, 2013).It is also
important to note that there are other methods of obtaining the use of assets for the business
without using debt or equity financing i.e. asset-based sources of financing. Debt financing
involves borrowing funds from creditors with the stipulation of repaying the borrowed funds plus
interest at a specific future time usually known as Maturity Value (MV).On the other hand,
equity financing means exchanging a portion of the ownership of a business for a financial
investment in the business. The ownership stake resulting from an equity investment allows the
investor to share the company’s profit (Nwoj,1999).It is interesting to note that equity stake in a
company can be in the form of membership units as in the case of a limited liability company; or
in the form of common or preferred stocks as in a corporation.

By and large, various sources of business financing will be discussed with a view to providing
the necessary knowledge required in terms of meaning, suitability, merits as well as demerits of
the financing options.

A. Personal Savings: Personal savings is the most common source of financing for small
business enterprises. It is regarded as an equity source of finance which has to do with the
personal money which the entrepreneur has been able to set aside for an intended
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 business venture. This includes cash and assets convertible into cash .This is the least
expensive method of financing and also the easiest as the decision to lend is made by the
same persons wishing to borrow the fund.
Lenders and investors expect entrepreneurs to put their own money into a business start-
up. If an entrepreneur is not willing to risk his or her own money, potential investors are
not likely to risk their money in the business either. Steinhoff (1974) argues that
whenever potential creditors are invited to invest in a new firm, their first desire would be
to know how much the owner has invested. The above submission was also supported by
Siropolis (1977) ,Broom and Longnecker (1971) and Olamiyulo (2010).In Nigeria for
instance, the Nigeria Bank for Commerce and Industry (NBCI) requires that the financial
stake of the owner be at least 10% of the total estimated investment in the project
excluding its working capital before the bank can assist the individual. The same
minimum is required by the family support programme for disbursing the Family
Economic Advancement Programme (FEAP).
Some benefits attached to the personal saving are that one has control over the business
in terms of ownership. In addition, entrepreneurs will make all commitment to make sure
that there is a good return on investment. One major setback with this kind of financing
option is that entrepreneurs having known that the business wholly belongs to them might
not commit much effort to business survival because they know they are not indebted.

B. Contribution from Friends and Relations: Funds can be raised for entrepreneurial
ventures through borrowing from friends and relations. Such individuals are more likely
to provide flexible terms of repayment than banks or other lenders and may be more
willing to invest in an unproven business idea, based upon their personal knowledge and
relationship with the entrepreneur (Brown & Carolyn, 2005). The amount to be raised
through this source, whether in the form of equity or debt financing; depends on the
financial capabilities of the friends and relations and the relationship that exists between
the business owner and his friends and relations. The repayment period and the interest
payable are a function of the terms of contract which are usually determined by the
lender.
Investments from family and friends are an excellent source of seed capital and can get a
start-up far enough along to attract money from private investors or venture capital

4
 companies. Inherent dangers lurk in family business investments; however, unrealistic
expectations or misunderstood risks have destroyed many friendships and have ruined
many family re-unions. To avoid such problems, an entrepreneur must honestly present
the investment opportunity and the nature of the risks involved to avoid alienating friends
and family members if the business fails. Smart entrepreneurs treat family members and
friends who invest in their companies in the same way they would treat business partners.
In addition, excessive borrowing in the early days of a business will put intense pressure
on its cash flow, and becoming a minority shareholder may dampen a founder’s
enthusiasm for making a business successful.
C. Retained Earnings: Funds can also be obtained through undistributed profits. A business
owner may decide to reinvest part of his or her profit back to the business for efficient
operations of the business. This is also called plough-back profit and it shows the naira
value of ownership rights that result from the business retention of its past income
(Olamiyulo, 2010). The profit available for ploughing back in an organization depends on
many factors like the net profits, dividend policy and the age of the organization (Don,
2013). In business, retained earnings are usually considered as an additional fund for
financing the future growth of the business. Some advantages attached to this source are
that it doesn’t involve any explicit cost in the form of interest, dividend or floatation cost.
Since the funds are generated internally, there is greater degree of operational freedom
and flexibility. It also enhances the capacity of the business to absorb unexpected losses.
The limitations inherent in this source are that excessive ploughing back may cause
dissatisfaction amongst shareholders as a result of lower dividend. It is also an uncertain
source because profits are fluctuating. Lastly, the opportunity costs associated with these
funds are not recognized by many firms which may lead to sub-optimal use of the funds.
D. Venture Capital: They provide capital to young businesses in exchange for an
ownership share of the business. Venture capital firms usually don’t want to participate in
the initial financing of a business unless the company has management with a proven
track record. Generally, they prefer to invest in companies that have received significant
equity investments from the founders and are already profitable.
E. Private Investors/ Angel: After dipping into their own pockets and convincing friends
and relatives to invest in their business ventures, many entrepreneurs still find themselves

5
 short of the seed capital they need. Frequently, the next stop on the road to business
financing is private investors. These private investors which are also referred to as Angels
are wealthy individuals, often entrepreneurs themselves, who invest in business start-ups
in exchange for equity stakes in the companies. Angel financing is ideal for companies
that have outgrown the capacity of investments from friends and family but are still too
small to attract the interest of venture capital companies. Angel financing is vital to the
nation’s small business sector because it fills this capital gap in which small companies
need investments. Angels also look for businesses they know something about, and most
expect to invest their knowledge, experience, and energy as well as their money in a
company. In fact, the advice and the network of contacts that Angel brings to a deal can
sometimes be as valuable as their money. If an entrepreneur needs relatively small
amounts of money to launch or to grow a company, Angels are an excellent source.
F. Bank Overdraft/Bank Credit: Bank overdraft is an overdrawn bank current account and
a short-term financial facility which is renegotiated every year depending on the
performance of the business. It may be secured or unsecured depending on the amount of
money involved. Bank overdraft is usually covered by personal guarantee of enterprise
owners and carries a higher interest rate than a normal loan. Often this interest rate is
higher than profit margin percentages, which makes it a very short-term loan for covering
cash flow problems rather than to finance acquisitions or buy stocks. Before banks grant
overdraft, the following factors are considered: the purpose for which the fund is
required; the character of the entrepreneur; the management and financial position of the
business; the capacity of the business and collateral security (this depends on the amount
of money involved).
G. Vendor Financing/Trade Credit
Many small companies borrow money from their vendors and suppliers in the form of
trade credit. Because of its ready availability, trade credit is an extremely important
source of financing to most entrepreneurs. When banks refuse to lend money to a start-up
business because they see it as a high credit risk, an entrepreneur may be able to turn to
trade credit for capital. Getting vendors to extend credit in the form of delayed payments
usually is much easier for small businesses than obtaining bank financing. Essentially, a
company receiving Trade credit from a supplier is getting a short-term, interest-free loan

6
 for the amount of the goods purchased. The key to maintaining trade credit as a source of
funds is establishing a consistent and reliable payment history with every vendor.
H. Equipment Suppliers
Most equipment vendors encourage business owners to purchase their equipment by
offering to finance the purchase. This method of financing is similar to trade credit but
with slightly different terms. Usually, equipment vendors offer reasonable credit terms
with only a modest down payment, with the balance financed over the life of the
equipment (often several years). In some cases, the vendor will repurchase equipment for
salvage value at the end of its useful life and offer the business owner another credit
agreement on new equipment. Some companies get equipment loans to lease rather than
to purchase fixed assets. Start-up companies often use trade credit from equipment
suppliers to purchase equipment and fixtures such as counters, display cases, refrigeration
units, machinery, and the like. It pays to scrutinize vendors’ credit terms, however; they
may be less attractive than those of other lenders.
I. Commercial Finance Companies
When denied bank loans, small business owners often look to commercial finance
companies for the same types of loans. Commercial finance companies are second only to
banks in making loans to small businesses, and, unlike their conservative counterparts,
they are willing to tolerate more risk in their loan portfolios. Of course, their primary
consideration is collecting their loans, but finance companies tend to rely more on
obtaining a security interest in some type of collateral, given the higher-risk loans that
make up their portfolios. Because commercial finance companies depend on collateral to
recover most of their losses, they are able to make loans to small companies with very
irregular cash flows or to those that are not yet profitable. Their most common methods
of providing credit to small businesses are asset-based—accounts receivable financing
and inventory loans. Rates on these loans vary but can be as high as 15 to 30 percent
(Don, 2013), depending on the risk a particular business presents and the quality of the
assets involved. Because many of the loans they make are secured by collateral, finance
companies often impose more onerous reporting requirements, sometimes requiring
weekly or even daily information on a small company’s inventory levels or accounts
receivable balances.

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J. Insurance Companies
For many businesses, life insurance companies can be an important source of business
capital. Insurance companies offer two basic types of loans: policy loans and mortgage
loans. Policy loans are extended on the basis of the amount of money paid through
premiums into the insurance policy. It usually takes about two years for an insurance
policy to accumulate enough cash surrender value to justify a loan against it. Once he or
she accumulates cash value in a policy, an entrepreneur may borrow up to 95 percent of
that value for any length of time. Interest is levied annually. However, the amount of
insurance coverage is reduced by the amount of the loan. Policy loans typically offer very
favorable interest rates, often at or below prevailing loan rates at banks and other lending
institutions. Only insurance policies that build cash value; that is combine a savings plan
with insurance coverage; offer the option of borrowing. These include whole life
(permanent insurance), variable life, universal life, and many corporate-owned life
insurance policies. Term life insurance, which offers only pure insurance coverage, has
no borrowing capacity.
K. Cooperative Societies / Credit unions: A cooperative society is an association
established by group of individuals who pooled their resources together to engage in a
business.It promotes saving and provide loans to their members. However, many are also
willing to lend money to their members to launch businesses. Credit unions don’t make
loans to just anyone; to qualify for a loan, an entrepreneur must be a member. The
amount that can be raised from cooperative society is subject to the financial commitment
of the members. The repayment period is not usually beyond two years since the fund is
provided on short-term sources of finance. The interest charged is also considerable low
compared with commercial bank interest rates.
L. Bonds
Bonds, which are corporate IOUs, have always been a popular source of debt financing
for large companies. Few small business owners realize that they can also tap this
valuable source of capital. Although the smallest businesses are not viable candidates for
issuing bonds, a growing number of small companies are finding the funding they need
through bonds when banks and other lenders say no. Because of the costs involved,
issuing bonds usually is best suited for companies generating sales between $5 million

8
 and $30 million and have capital requirements between $1.5 million and $10 million
(Factsheet, 2015). Although they can help small companies raise much-needed capital,
bonds have certain disadvantages. The issuing company must follow the same regulations
that govern businesses selling stock to public investors. Even if the bond issue is private,
the company must register the offering and file periodic reports with the Securities and
Exchange Commission (SEC). Small manufacturers needing money for fixed assets have
access to an attractive, relatively inexpensive source of funds in Industrial Development
Bonds (IDBs), which are created to give manufacturers access to capital at rates lower
than they could get from traditional lenders.
M. Commercial Banks
Commercial banks are the very heart of the financial market for businesses, providing the
greatest number and variety of loans to companies (Don, 2013). Banks tend to be
conservative in their lending practices and prefer to make loans to established small
businesses rather than to high-risk start-ups. Bankers want to see evidence of a
company’s successful track record before committing funds. They are concerned with a
firm’s operating past and will scrutinize its financial reports to project its position in the
future. They also want proof of the stability of the company’s sales and about the ability
of the product or service to generate adequate cash flows to ensure repayment of the loan.
If they do make loans to a start-up venture, banks like to see sufficient cash flows to
repay the loan, and ample collateral to secure it. The factors considered by banks before
loans can be given can be summarized using the mnemonic PARTS. This stands for:
Purpose for which the loan will be collected (P), Amount to be collected (A), Repayment
plan (R), Term of the loan (T), as well as Security (S).
Types of short term commercial loans include:
i. Commercial Loans or Traditional Bank Loans: A basic short-term loan is the
commercial bank’s specialty. Business owners use commercial loans for a
specific expenditure—to buy a particular piece of equipment or to make a specific
purchase, and terms usually require repayment as a lump sum within three to six
months. Two types of commercial loans exist: secured and unsecured. A secured
loan is one in which the borrowers promise to repay is secured by giving the bank
an interest in some asset (collateral). Although secured loans give banks a safety

9
 cushion in case the borrower defaults on the loan. They are much more expensive
to administer and maintain. With an unsecured loan, the bank grants a loan to a
business owner without requiring him or her to pledge any specific collateral to
support the loan in case of default. Until a small business is able to prove its
financial strength to the bank’s satisfaction, it will probably not qualify for an
unsecured commercial loan. For both secured and unsecured commercial loans, an
entrepreneur is expected to repay the total amount of the loan at maturity.
Sometimes the interest due on the loan is prepaid—deducted from the total
amount borrowed.
ii. Lines of Credit: One of the most common requests entrepreneurs make of banks
and commercial finance companies is to establish a commercial line of credit, a
short-term loan with a pre-set limit that provides much-needed cash flow for day-
to-day operations. Banks set up lines of credit that are renewable for anywhere
from 90 days to several years, and they usually limit the open line of credit to 40
to 50 percent of a firm’s present working capital, although they will lend more for
highly seasonal businesses (FAO, 2016). Bankers may require a company to rest
its line of credit during the year, maintaining a zero balance, as proof that the line
of credit is not a perpetual crutch. Like commercial loans, lines of credit can be
secured or unsecured. A business typically pays a small handling fee (one to two
percent of the maximum amount of credit) plus interest on the amount
borrowed—usually prime plus three points or more(Don,2013).
N. Leasing: A lease is a contractual agreement whereby one party i.e. the owner of an asset
grants the other party the right to use the asset in return for a periodic payment. In other
words it is a renting of an asset for some specified period. The owner of the assets is
called the ‘lessor’ while the party that uses the assets is known as the ‘lessee’. The lessee
pays a fixed periodic amount called lease rental to the lessor for the use of the asset. The
terms and conditions regulating the lease arrangements are given in the lease contract. At
the end of the lease period, the asset goes back to the lessor. By leasing expensive assets,
the business owner is able to use them without locking in valuable capital for an extended
period of time. In other words, the manager can reduce the long-term capital
requirements of the business by leasing equipment and facilities, and he or she is not

10
 investing his or her capital in depreciating assets. In addition, because no down payment
is required and because the cost of the asset is spread over a longer time, a company’s
cash flow improves.
O. Hire Purchase: Hire purchase is used when purchasing assets such as plant, equipment,
machinery and vehicles. An initial deposit may be required followed by a series of
instalment payment with an attached interest. The interest rate is usually controlled by the
prevailing bank rate. Under hire purchase, agreement periods can range between 1 to 3
years depending on life span of the asset. Hire purchase is quick and easy to arrange, the
security for agreement being the asset itself. Upon the payment of the initial deposit, the
customer enjoys immediate use of the asset. The asset legally belongs to the owner of the
asset and if the buyer defaults, the owner of the assets automatically repossesses his or
her asset. Hire purchase is similar to leasing, with the exception that ownership of the
goods passes to the hire purchase customer on payment of the final credit instalment,
whereas a lessee never becomes the owner of the goods.
P. Microfinance Banks: Microfinance bank was established in 2005 by the Central Bank of
Nigeria according to the provisions of Section 28, sub-section (1) (b) of the CBN Act 24
of 1991(as amended) and in pursuance of the provisions of Sections 56-60(a) of the
Banks and Other Financial Institutions Act (BOFIA) 25 of 1991. This was mainly to
promote monetary stability and a sound financial system in the country. The
establishment of microfinance bank is meant to expand the financial infrastructure of the
country so as to meet the financial requirements of the Micro, Small and Medium
Enterprises (Nwanyanwu, 2011). Three features distinguished microfinance from other
formal financial products. They are the smallness of loans advanced and or collected, the
absence of asset- based collateral and simplicity of the operations (Sam et al, 2006).
Q. Commercial Paper: This is essentially promissory notes issued by repayable companies
to borrow short –term funds from the public. Collateral is not needed but what matters
most is the reputation of the company. This is an instrument used by large concerns to
raise short-term funds from the money market. It is usually issued on behalf of the
company by an issuing house. The issuing house does not guarantee the notes but assists
in finding investors to buy them. Commercial papers usually carry a stated coupon rate
and the maturity date ranges between 90-180 days (Uche, 2006).

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R. Factoring Accounts Receivable
Instead of carrying credit sales on its own books (some of which may never be collected),
a small business can sell outright its accounts receivable to a factor. A Factor buys a
company’s accounts receivable and pays for them in two parts. The first payment, which
the factor makes immediately, is for 50 to 80 percent of the accounts’ agreed-on (and
usually discounted) value. The factor makes the second payment of 15 to 18 percent,
which makes up the balance less the factor’s service fees, when the original customer
pays the invoice (Don, 2013). Factoring is a more expensive type of financing than loans
from either banks or commercial finance companies, but for businesses that cannot
qualify for those loans, it may be the only choice.
Factoring deals are either with recourse or without recourse. Under deals arranged with
recourse, a small business owner retains the responsibility for customers who fail to pay
their accounts. The business owner must take back these uncollectible invoices. Under
deals arranged without recourse, however, the owner is relieved of the responsibility for
collecting them. If customers fail to pay their accounts, the factor bears the loss. Because
the factoring company assumes the risk of collecting the accounts, it normally screens the
firm’s credit customers, accepts those judged to be creditworthy, and advances the small
business owner a portion of the value of the accounts receivable.
S. Public Stock Sale (Going Public): In some cases, entrepreneurs can “go public” by
selling shares of stock in their corporations to outside investors. In an Initial Public
Offering (IPO), a company raises capital by selling shares of its stock to the general
public for the first time. A public offering is an effective method of raising large amounts
of capital, but it can be an expensive and time consuming process filled with regulatory
nightmares. Once a company makes an Initial Public Offering, nothing will ever be the
same again. Managers must consider the impact of their decisions not only on the
company and its employees, but also on its shareholders and the value of their stock. It is
extremely difficult for a start-up company with no track record of success to raise money
with a public offering. Instead, the investment bankers who underwrite public stock
offerings typically look for established companies with the following characteristics:
Consistently high growth rates, a strong record of earnings, three to five years of audited

12
financial statements that meet or exceed Securities and Exchange Commission (SEC)
standards. Entrepreneurs who are considering taking their companies public should first
consider carefully the advantages and the disadvantages of an IPO. The advantages
include among others; ability to raise large amounts of capital, improved corporate
image, improved access to future financing, ability to attract and retain key employees,
use of stock for acquisitions, and listing on a stock exchange
The disadvantages of going public include dilution of founder’s ownership, loss of
control, loss of privacy, reporting to the SEC, filing expenses, accountability to
shareholders, pressure for short-term performance, among others.

NON-BANK SOURCES OF DEBT CAPITAL

We now turn our attention to other sources of debt capital that entrepreneurs can tap to
feed their cash-hungry companies. This arrangement allows small businesses to borrow
money by pledging idle assets such as accounts receivable, inventory, or purchase orders
as collateral, popularly known as asset-based lenders. This form of financing works
especially well for manufacturers, wholesalers, distributors, and other companies with
significant stocks of inventory or accounts receivable (Factsheet, 2015). Even
unprofitable companies whose financial statements could not convince loan officers to
make traditional loans can get asset-based loans. These cash-poor but asset-rich
companies can use normally unproductive assets such as accounts receivable, inventory,
fixtures, and purchase orders to finance rapid growth and the cash crises that often
accompany it. Like banks, asset-based lenders consider in a company’s cash flow, but
they are more interested in the quality of the assets pledged as collateral. The amount a
small business can borrow through asset-based lending depends on the advance rate, the
percentage of an asset’s value that a lender will lend.
The most common types of asset-based financing are discounting accounts receivable and
inventory financing which are discussed as follows:
i. DISCOUNTING ACCOUNTS RECEIVABLE: The most common form of
secured credit is accounts receivable financing. Under this arrangement, a small
business pledges its accounts receivable as collateral; in return, the lender
advances a loan against the value of approved accounts receivable. The amount of

13
 the loan tendered is not equal to the face value of the accounts receivable.
However, even though the lender screens the firm’s accounts and accepts only
qualified receivables, it makes an allowance for the risk involved because some
will be written off as uncollectible. A small business usually can borrow an
amount equal to 55 to 80 percent of its receivables, depending on their quality.
Generally, lenders will not accept receivables that are past due (British Business
Bank, 2014).
ii. INVENTORY FINANCING: Here, a small business loan is secured by its
inventory of raw materials, work in process, and finished goods. If an owner
defaults on the loan, the lender can claim the pledged inventory, sells it, and uses
the proceeds to satisfy the loan. Because inventory usually is not a highly liquid
asset and its value can be difficult to determine, lenders are willing to lend only a
portion of its worth, usually no more than 50 percent of the inventory’s value
(Don, 2013). Most asset-based lenders avoid inventory-only deals; they prefer to
make loans backed by inventory and more secured accounts receivable. The key
to qualifying for inventory financing is proving that a company has a plan or a
process in place to ensure that the Inventory securing the loan sells quickly.

Asset-based financing is a powerful tool, particularly for small companies that have
significant sales opportunities but lack the track record to qualify for traditional bank
loans. A small business that could obtain a N1 million line of credit with a bank for
instance; would be able to borrow as much as N3 million by using accounts receivable as
collateral. Asset- based borrowing is also an efficient method of borrowing because a
small business owner has the money he or she needs when it is needed. In other words,
the business pays only for the capital it actually needs and uses. To ensure the quality of
the assets supporting the loans they make, lenders must monitor borrowers’ assets,
making paperwork requirements on these loans intimidating, especially to first-time
borrowers. In addition, asset-based loans are more expensive than traditional bank loans
because of the cost of originating and maintaining them and the higher risk involved.
Rates usually run from two to seven percentage above the prime rate (Uche, 2006).
Because of this rate differential, small business owners should not use asset-based loans

14
for long-term financing; their goal should be to establish their credit through asset-based
financing and then to move up to a line of credit.

CONCLUSION
Growing a business from the first seed of an idea is not a smooth linear journey and it’s
not as simple as a journey from one particular point to another. The destination is seldom
decided as the business idea takes form, becomes a reality and then grows into a
successful enterprise. The finance journey is continuous; there may never be an arrival
point. For any business to travel on a journey, it needs at all points of that journey to be
appropriately financed. Choosing the right source of capital is a decision that will
influence a company for a life time. Entrepreneurs have to be creative in their searches
for capital as they are in developing the business ideas. Similarly, the type of financing
one seeks depends largely on the start-ups. If a business is getting started, consider a loan
from family, friends or a bank. As the business grows and reaches a larger market, equity
funding may become a more viable option if one is willing to give up a portion of the
business. In addition, adequate measures have to be taken to ensure utilization of funds
for the purpose in which they were collected for. This will ensure adequate cash flow that
will enable smooth repayment process of such a debt.

15
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