Long-term finances

Long-Term Finances

Businesses can use the capital (money) to initially start up, to fund new investments for growth or to support a business if it is struggling. Some long-term methods of finance are:

Personal savings:

• This is personal money that is invested by the owner of a company.

• It is most relevant for start-up companies, in which the entrepreneur has saved up to fund his business venture.

• A downside is that it can be very risky for an entrepreneur to put a significant amount of their personal savings into a business.

Loans (Friends and Family):

• A loan agreement in which friends, family, or personal acquaintances agree to lend money to a business owner.

Advantages:

• Lower Interest rates

• You know them well

• They are inclined to say, “Yes.”

• They can give you the time to build your business on your own schedule

• They will let you develop your vision into something others will recognize and value

• You will be set up to hit major milestones and raise the next round of funding from professionals at higher valuations.

Disadvantages:

• Your friends and family may know you too well

• They may not be able to add value because they may not understand your business

• They may not appreciate your entrepreneurial drive

• You will feel highly responsible for any losses they may incur

• You may put the people you love best at risk, if they are giving you a significant portion of your savings

• You may damage close relationships.

Loans (Banks):

• Bank loans and mortgages are very important for many businesses. A business borrows money from a bank and then pays interest on the money borrowed.

• It is often harder for new businesses to get bank loans because banks see them as riskier.

Benefits:

• A business loan usually has a low interest rate in comparison to many other funding options

• With bank loans, you only need to worry about making your regular installment payments on time. This is an advantage over overdrafts

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