new business module

FINANCING A BUSINESS 109
However, this requires careful consideration, as the business
needs to generate enough profit to provide a return to all
those who invested in it.
Entrepreneurs investing their own funds in their business also
send out a message to third parties. They show that they
believe in the business and that they are ready to risk their own
money to run it – they show commitment. Showing this type
of commitment can prove crucial when they decide to apply
for funds from a financial institution like a microcredit institute,
a bank or moneylenders.
Microfinance institutions and NGOs providing grants for small
businesses often demand a personal contribution of funds
from the entrepreneur to supplement a loan or a grant.
3.3 Loans
Entrepreneurs with a convincing business idea and a good
business plan illustrating its potential profitability may qualify
for a loan from a financial institution. Often, however, loans are
granted only if the entrepreneur has some type of collateral
(e.g. is the owner of a house ).
Entrepreneurs who use loans to start their business must add
the respective costs – i.e. interest payments and reimbursement
of the principal – to all their calculations!
For starting entrepreneurs with limited means and no collateral,
loans are usually not accessible.
Entrepreneurs who have a seasoned business and can illustrate
their financial viability and profitability have a better chance
of obtaining a loan. This is another reason for entrepreneurs
to keep records and properly document the profitability of
their business.