Finding The Right Mix Of Debt And Equity With SME Business Finance

Finding finance for a small business can be one of the most daunting tasks for a business owner. Actually, finance is a relationship Debt And Equity 2between risk, value and cash and to become successful in your business, you have to manage each of them properly. You have to develop an effective business plan which will relate to believable and realistic financial. Whether you are finding finance for a business, project, expansion or acquisition, you have to develop what exactly your financial needs are.

As a small business owner, you show your belief in the business by spending up to 10% of your financial needs from the coffers of your own. Rest of the 20-30% of the cash can be made available from venture capital or private investors.

You have to keep in mind that equity cannot work as a replacement for real cash. Based upon your business valuation and the risks involved, private equity components will want 30-40% of your equity stake in your company for 3-5 years. If you give up this equity in you business and still maintain a clear majority ownership, then you will have the 60% of the remaining finance needs at your disposal.

Rest of the finance can be available in the form of short term working capital,

inventory finance, equipment finance and also long term debt. If you have a strong cash position in your business, you will not have a dearth of financers to invest in your company. It would be wise to hire a professional and experienced commercial loan broker who will do all the finance shopping for you and make a variety of options available to you. At this juncture, it is important for you to obtain finance which fits your business structure and needs.

Debt And Equity

By having a stronger cash position of your company, the extra debt financing will not be enough to put undue strain on your company’s cash flow. Debt finance may be available in the form of non-secured finance like short term debts, long term debts and line of credit financing. Unsecured debts are typically known as cash flow finance and require credit worthiness.

Debt finance may also be in the form of asset based or secured finance which may include real estate, equipment, inventory, accounts receivable, personal assets, government guaranteed finance or letter of credit. By having a strong cash position in your company, you will have a customized mixture of secured and unsecured debt, specifically designed for your company’s cash needs.

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