THE NEED FOR FINANCE

Businesses need money for one or more of the following reasons:-

• To put the basic infrastructure in place.
• To get the trading activities of the business moving.   
• To acquire capital equipment.  
• To purchase inputs.  
• To carry out marketing activities.   
• To pay staff.

SOURCES OF FINANCE

There are several sources of financing that are available to entrepreneurs. These include:-

• Personal: Savings, Assets which can be used as leverage in securing other funds. 
• Friends and relatives: This is often called love money.   
• Banks: Commercial and Development  
• Credit Unions   
• Partners  
• Silent Partners: Own a percentage of the business but does not play an active role in the day-today operations. You are able to maintain control over your business
      Active Partners: Play a role in the business. 
• Investors   
• Suppliers   
• Potential Customers   
• Government Special Programmes

SOME THINGS TO NOTE WHEN DECIDING ON A SOURCE OF FINANCE

i. Loans from banks and Credit Unions must be paid back with interest over a predetermined time. You must not only have collateral but you must be able to repay the loan as well.
ii. Having a partner

• Adds needed resources and skills to your business.   
• Gives you someone with whom you share failures and successes.  
• Prevents you from having full control of your business.

iii. Term Loans: taken for a specified period of time.
iv. Trade Credit: a supplier sells you products on credit.
v. Line of Credit: operates similarly to a credit card but has a lower rate of interest.

LENDING CRITERIA - THE FOUR C’S

• Character: The financial institution assesses you and the business’s past financial history and credit rating.   
• Capacity: The lending agency determines if the business is capable of making projected profits and marketing its products; Has a healthy cash flow and realistic projections.   
• Conditions: General economic conditions.   
• Collateral: Security against the amount of money that is borrowed. It can take the form of the business or owner’s assets.