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Not all the sources of funds are good for all types of business. Before one can select a source of fund, there are certain areas that one must be very clear about.
(a) The conditions for borrowing imposed by the lender (Bank).
i. Whether the bank needs security and what type of security. Does the business have the necessary security?
ii. Re-payment period. How long is the term of credit and how are the monthly instalments. Can the business comfortably meet these repayments?
iii. The interest rates (cost of money) and how they are likely to change and how they would affect the business if they did change.
(b) Know all the factors both internal and external that would affect the success of your business and how these factors are likely to change in the present and in the future.
(c) Must know about the environment of the business and especially of the lenders business and the movements that are likely to take place in the banking industry.
(d) The businessman must be able to evaluate his business competence to see whether it is in a position to meet the conditions and requirements of the lender.
(e) He must be able to evaluate and compare the amount of risk and the financing obligations taken on when the loan is given.
Sourcing for funds the businessman may make the following mistakes:
1. Asking too many sources for funds
2. Failing to state obvious shortcomings
3. Overlooking serious defects in the business or debt source
4. Defining the business too narrowly.
Titany answered the question on October 26, 2021 at 13:17
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