These are loans that are given to businesses mainly by the government however they are hard to secure. businesses have to meet certain obligations before getting finance from donors and well wishers, some organizations give businesses or individuals finance to start or un businesses, these include the local authorities and the nongovernmental organizations there are different programs by the government that offer different types of grants in a bid to achieve equitable wealth distribution these include soft loans, these are loans which are given to start or run a business, they can be given for a long time or may have little interest rates.
Direct grants are given by the government through cash awards which is usually given out for activities such as training, employment and export development. The government can also offer grants in form of free subsidized consultancy with experts in certain. When starting a business, the grants can come in form of cost sharing where the involved business or party can be mandated to give a 50% contribution of all resources or capital required by the business. Government can provide grants in certain field such as scientific, environment and medical research. The reason why grants are hard to secure from the government is because they are f9inanced by taxes of the country. Nonprofit organizations also can receive grants such as women campaigns.
The main reason why the government offer grants to small businesses in certain fields such stimulate growth in the economy through research and development, this enables the businesses to commercialize innovations. Many entrepreneurs spent many hours and time researching and looking for grants from the government, it is important for them to get the knowledge about grants and falling for false promises not unless they are doing a business in the areas that the government or the concerned institutions have programs to give grants to the parties. Generally loans are easy to secure and little or no restrictions are placed as to whom or which business is eligible to take a loan
Types of business funding available for businesses
There are various ways in which an entrepreneur can fund their businesses; debt financing such as loans, from families, bank overdrafts, equity such as savings and sale of assets. When it comes to donations from friends and family, these are grants which they will expect a return or refund thus they invest in the business. Loans from banks and financial institutions have been a good source of funds for many businesses for long. If the financial institution has a good reputation about the personal or business taking the loan then It would be easy for one to secure a loan with them.
Basically loans are the cheapest and the easiest means of funding for any small businesses, some business may require a collateral security before giving a loan to the involved party; they may also require a good business plan and other solid evidence that the borrower can be able to repay them. Another form of debt financing is the bonds, this involves finance where the date of payment of principal and interest are stated, and thus the business may not be required to make partial payments.
Another method that a business may get financing is by leasing assets, the business can obtain an asset and use it and the required rent payment is give to the other party according to the agreement, at the end of the period agreed upon, the business may purchase or renew the lease or return the property. The business will have to generate more income to cover the cost of leasing the asset. Equity financing involves financing of the business in exchange for part ownership of the business by the involved institution providing the finances.
The first form of equity financing is personal; savings from the bank accounts, life assurance, real estate loans, and home equity loans. Venture capitalist may come in form of companies looking for smaller companies to invest in, they often prefer companies that have already established and are already profitable