Develop a list of sources of financing for a small business Essay

Develop a list of sources of financing for a small business - Essay Example In this source, a proprietor uses own savings or borrows or sells a personal item such as bonds, mutual funds, stocks, or real estate to fund his/her business. In addition, one may use home-equity line of credit to finance own business. Furthermore, one could give loans or merely contribute money to own business. The other sources of contribution include family and friends with access to more cash than the proprietor does. The second sources of finance for small businesses are banks. In fact, in current times, banks have become quite instrumental not only in supporting already established small businesses but also in giving start-up loans for new small businesses (Burk & Lehmann, 2006). Unfortunately, banks have quite cumbersome conditions to be met before small business loans are approved. For instance, banks have to establish the credit worthiness of the borrowing business of person, more so with regards to a business’ money-making history. That is, commercial banks would wa nt to be assured that the loaned will be able to repay the lent sum plus the interests therein. It is thus imperative that the person seeking a loan from a bank draws up a good business plan in addition to the collateral against which the loan is to be given. If not, the borrower must have a guarantor or a cosigner who must satisfy the bank that he/she will repay the loan if the borrower fails to pay. Venture Capital Firms is the other common source of financing for small business. These firms give funds to small businesses considered and believed to have outstanding growth potential. On a rather negative note, quite a few small businesses are financed by venture capital firms. Being financed by venture capital firms is significantly unlike getting financed by bank loans. In fact, venture capital lenders have a right not only to the repayment of the capital but also on the interest earned by the loan, notwithstanding the profits or losses/failure