Sunday, July 8, 2012

Sources Of Capital

Money is always a problem when venturing into business. You might have some cash but you feel that it is not enough to cover the start-up or pre-operating expenses of the business.

Personally, that was my problem before because I always wanted to venture into junk shop business but I always stumble upon the money problem - I do not have enough cash to support my business idea.

So I did a little research and found these capital sourcing very interesting.

Your personal savings.

The most obvious source of your capital is from your self or from the money that you have saved. This could also be the safest as you do not owe anything to anyone. So if you are planning to venture into business someday, you should be saving early on. This is applicable to the low risk taker as this might take a little while. As you are saving for your business, you might to invest that money somewhere else so it would yield some interest and this could also be an additional source of capital too.

Sell some assets.

So you have extra cash you stashed away into mutual fund or time deposits, now is the time to sell them to fill in that capital you need for your business. You might need to get in touch with your broker in doing this.

Do you have those jewelries hidden in your closets or drawers now covered with web and dust? Or those branded jackets and shirts? You can sell them either by holding a garage sale or thru online. You can actually look around the house and be surprised that there are a lot of items you do not often or totally not using that you can sell.

Work for extra income.

I am now into blogging because I am hoping to earn from the research I am doing on how to go into business and how to be successful in it. Yes, this is my extra income in case I will earn from it. While I am still waiting for my blogs to generate revenue, I also do over time work during weekends 1) to pay out my debts and 2) to give me extra cash so I can save for my future business venture.

So if you are into sourcing your capital you might want to work on income opportunities that could be available and suited to you.


Please check this list of available loans for you to choose from. You should be aware that almost all of them if not all have interest and some can be amazingly high. This is by far the fastest way to get a capital and mind you - this is the most risky. Before plunging into any loans, be sure to read through the terms and conditions and most of all, the effect of paying the interest to your business in the long run.

Separation or Last Pay

If you are someone who has been terminated, separated or resigned from work, then use all the money you can get to start up your business. The business you might get into might feed you for the rest of your life and you do not have to be an employee anymore!

Credit cards

Credit cards can easily be used to gain some business capital. Avail a cash advance or make the necessary purchases for your startup venture. If you always pay your credit card bills in full every month, your credit limit could go as high as P250,000 in a couple of years – which is usually high enough to leverage on and start a business with.

A few reminders if you plan to do this method. First is to remember your cut-off date and do your purchases right after so you’ll have more time to save up. Second is to remember your due date. When you become so busy and engaged with your business, you might forget to pay your bills. And lastly, since you’ll be paying around 3.5% interest per month on your credit balance, it’s essential that your business generates enough income to cover for the payments and these charges. Again, having a thorough business plan plays an important role in this situation.

Rediscounting of Cheques

In all of the available sources of capital, this one interests me the most as this is new to me. Some money lenders would accept your post dated cheque and in return would give you the cash you need with interest of course. Dependent on your agreement, you can negotiate to issue a post dated cheque of Php20,000 and the money lender will provide you with the Php19,000 capital you need! Instant money right.

When doing this, be mindful of the due date as you do not want your cheque to bounce and eventually make yourself a shouting criminal record. You will no longer be eligible to get any bank loan once you are marked in the system or your credit score gets stained.

Borrowing from friends and relatives

Among all choices, from your savings and borrowing from are the safest. Be careful when you do this - you do not want your self be insulted in the end in case you fail and is not able to return the money. So you should have a very good business plan so failing is not an option. One advantages of borrowing from friends and relatives is that mostly will not charge you of interest. Payment terms can also be flexible as you can negotiate with them the dates when your most able to pay back.

When you do this, be as professional as possible. Present the business plan and most of all be honest as when you will be able to pay them back. Be clear that you’re merely borrowing money from them and they will not legally own part of the business. Some people might think that just because they lent you money for the start up, they instantly become investors and can actively participate in the business. Occasional help and a few suggestions can be entertained but draw the line and state that executive decisions will solely come from you.

Form a joint venture of look for a capitalist

In both options, you will lose the sole right to the business. Be prepared as some business and personal relationship is ruined when every thing goes wrong with the business.

Instead of borrowing money from family and friends, you can also consider making them a real part of the business. It’s very common nowadays for friends to pool their money and resources to put up a business. There are actually ventures that succeed faster through partnerships. Make a team whose strengths and expertise complement each other. For example, one partner can have good accounting skills, while another is proficient in sales and marketing and one is a legal expert.

Unfortunately, many friendships have also been strained when things go wrong or become difficult. It’s important that from the very start, each one understands the amount of work that needs to be done and is willing to go the extra mile to make the business successful. Also, be sure to clearly define the responsibilities, boundaries and jurisdiction of each partner in the business. Lastly, write everything on paper including the options and terms if ever one partner chooses to leave the business.

Venture capitalists are also called angel investors. These are people or companies who are willing to pay for your startup in exchange for part ownership or royalty fees from your business. Guy Kawasaki is an example of such people. One major advantage of doing this is that you could further tap the VC’s extensive network of partners to help enhance your business. However, do remember that most likely, you’ll lose free rein over running your business because certain decisions will need to be consulted to the VC before they can be implemented.

Looking for a venture capitalist can be quite difficult in the Philippines but they do exist. Always have an elevator pitch ready just in case you bump into one. You can also seek them out in online forums and websites such as the Brain Gain Network (BGN), where Filipino VC’s and technopreneurs are some of the active members.

I sincerely hope that the list help as it did to me. Remember that a good business plan is the key because everything follows.

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