Financing New Venture

FINANCING THE NEW VENTURE:
SOURCES OF BUSINESS FINANCE
Sources of finance can be classified into two major ways.
1. Equity source
b) Debt source
(ii) a) internal source
b) External source

EQUITY CAPITAL VERSUS DEBT CAPITAL

Debts financing is a financing method involving an interest bearing instrument usually a loan.
Most of such loans require fixed assets such as vehicles land machines and others to be used as collateral security.

Debt financing requires entrepreneur to pay back the amount borrowed well as interest.
Equity financing on the other hand does not require collateral security and it offers the investor some form of ownership position in the venture. The investor’s shares in the profits of the venture as well as any disposition of its assets as per the percentage of business owned. Factors that may be considered in making decision on whether to go for debt financing or equity financing includes the following:-

- Availability of funds
- The assets of the venture
- The rate of interest
- Repayment period
- The use of the finance e.g. to finance fixed assets, to finance working capital activities or to finance growth activities of an organization.

INTERNAL VERSUS EXTERNAL SOURCE OF FINANCE
Internal source of funds refers to internally generated funds or generated within the business
Example of internal source of finance include:-
1. Profits ploughed back
2. Sale of assets
3. Reduction in working capital
4. Collection of account receivable more quickly
5. Reduction of repayment period.

External sources of finance include the following:
1. Self
2. Family friends
3. Commercial bank
4. Government loan programmers
5. Private and public placements

The source to be considered need to consider the following factors
a) The length of time the funds are available
b) The cost involved.
c) The amount of company control lost
The external sources of finance mentioned above

Personal saving
There are very few ventures...