It has been observed that a large number of people now prefer business to job. The number of self employed people is increasing. There are several advantages of self employment. First of all, you become your own boss. You can fix your own working hours. However, there is no need to mention the fact that businesspeople have to work long hours. Besides the above mentioned benefits, money is the biggest motivating factor for those who want to start up their own business. The rate of failure among business start-ups is fairly high. This is because the owners of these businesses lack management expertise or business knowledge. In most cases, inadequate capital is the reason behind the business failure. Just like an established business, start-ups also require sufficient capital to run their day to day business operations as well as to finance their long term business needs. If you are planning to set up a new business, you must know the difference between equity financing and debt financing. Equity financing involves using owners funds. Large companies raise equity share capital by issuing their shares to the common man. When a person buys equity shares of a company, he becomes an owner of the company and is entitled to profits and losses of the company. If you are setting up a small company, you can invite business partners to join your business and invest in it. However, in doing so, your ownership in the business dilutes. Another source of business finance is debt finance. It includes loans and debentures. Loans are the most common type of debt finance in case of Business Start-Ups. Lenders offer both short-term and long-term loans for small and new businesses. Short-term loans are usually unsecured and are used to run day to day business operations. Long-term loans are secured against a property and are used to buy fixed assets such as land, building and machinery. Whether you use equity or debt finance to set up your business, keep in mind that the key to success is dedication and hard work. |
