Introduction To Finance 2Acc0810N (Coursework) : Segi College Subang Jaya

SEGi College Subang Jaya
Introduction To Finance
2ACC0810N
[Coursework]
Name: Lim Chee Yang

ID : SCSJ-0008319
Table Content
1.0) Various method of raising capital for small
business.
1.0.1) Nine method of raising capital in small

business.
2.0) Why small business have difficulty in

raising capital?
3.0) Reference
1.0) Describe the various methods of
raising capital for a small business.
Almost every little thing which makes up any business requires a certain amount of
money to go along with it. Even as simple as planning for the setting up of one indeed
warrants expenses in one way or another. It is impossible to make a business venture
move along without any means of substantial amount of capital.
Even with this ever present predicament for any budgeting, there are a number of
ways to gather the necessary capital. Be wary though that each method of raising capital
has its positive and negative side, in which each planner should deliberate before taking
action. Budgeting and choosing the right methods of raising capital are essential in the
longevity and success of a starting business.
1.1.1) Nine method of raising capital in

small business.
Besides that , there are nine ways of raising capital in small business. The first
method which are, saving up your own money, when starting a small business you may
not have all the money needed for start up costs; however you should have some money
saved up for the purpose of starting your business. Bank lenders in particular are more
suspicious of entrepreneurs who don’t invest in their own business. As a result they can
decline a loan because of your lack of investment.
Second method, find a business partner and use their funds, Another way of raising
capital for small business expenses is to develop a business partnership with someone
who can invest in your business. Make sure to present them with a persuasive explanation
for why they should join forces with you.
Third method, getting small business loan, When raising capital for small business
expenses many entrepreneurs go this route. However before attaining a loan you should
be aware that there are many factors associated with business loans such as interest rates,
late charges and collateral. Local community banks are often a great place to obtain a
business loan. If you get rejected for a bank loan you may qualify for a SBA loan.
Fourth method, borrow from friends or family, I know raising capital for small
business expenses by asking friends and family for money isn’t fun, but hopefully you
can win them over with your great business idea. To avoid complications in the future
make sure to have a written agreement stating terms and details of the loan. You wouldn’t
want to fight with loved ones over money. Be sure to present your proposition in a
professional manner. Show them your
business plan, explain to them why they should invest in you, and answer all their
questions. If someone is giving you money for your business as a gift, be sure you obtain
a letter from them stating the amount of money and that it was a gift. This is precaution to
avoid future complications and misunderstandings
Fifth method, incorporating your small business, many entrepreneurs decide to

incorporate their businesses for the purpose of raising capital for small business expenses.
When you incorporate your small business, you will be able to sell shares of stocks.
However when you sell shares of stocks you will also be selling a percentage of the
ownership over the business. So if you sell 50% of your corporation’s shares of stocks
you are selling 50% of the business ownership.
Sixth method, finding a venture capitalist, venture Capitalists are professionals who
invest in businesses that show a high growth potential. Not only do venture capitalists
provide funding for their clients by investing in their business but they also provide
valuable business advice and strategies. If a venture capitalist decides to invest in your
business it demonstrates to others that they viewed your chances of success to be
favorable. However once a venture capitalist decides to invest in your business they often
have a say on how it should be run. Since venture capitalists invest in businesses that
demonstrate very high and fast growth rates, many small businesses do not meet the
criteria.
Seventh Method, angel investors, Finding an angel investor is another way of raising
capital for small business expenses. Angel investors are simply private investors who
invest money in your business with the belief and hope that in a couple of years they will
see a higher return on their investment. After a 5 year period an angel investor may
expect a return of at least double their initial investment. Of course starting a small
business is risky business so the angel investor may not see any return if your small
business fails. Naturally an angel investor will want guaranteed exit provisions in the case
that your small business fails.
You can find an angel investor by networking with other business owners and small
business professionals. You can also subscribe to angel network firms that can match you
with an angel investor.
Eighth method, small business investment companies, Small Business investment

companies are venture capitalists targeted for small businesses. They are partnered with
the government and provide small businesses with funding in exchange for a percentage
of ownership in the business.
Lastly, Credit cards. Many small businesses have turned to credit cards in order to
pay their small business expenses. Credit Cards may seem like a quick fix but make sure
the terms and interest rates are reasonable.
2.0) Why small business have difficulty

in raising capital?
The problem of small businesses not having ready access to sources of

long-term finance was first identified 70 years ago. However, this problem
still persists today and poses a major obstacle to growth. It seems that small
businesses have to overcome a variety of difficulties when seeking to raise
finance. This include, a lack of financial management skills (leading to
difficulties in developing credible business plans that will satisfy lenders and
investors), a lack of knowledge concerning the availability of sources of
finance.
One consequence of these difficulties may be a short-term funding sources,

such as bank overdrafts, over-reliance on the Fund's operations. In addition
to identifying the difficulties, which is worth mentioning that the cost of
financing is often higher than small businesses, because it involves a higher
risk of large enterprises. However, not all of the problems is the long-term
funds raised externally imposed - some from the attitude of the owners.
Many small business owners seem reluctant to consider the issue of shares
by increasing the share capital of outsiders, as it relates to control the dilution
of new funds. It was also claimed that some owners do not take out loans
because they do not believe in borrowing. Although long-term financing to
small businesses is not always easy, but it is still true to say, things have
improved over the years.
 Raising capital for a startup or small business is without question one of

the most challenging aspects of growing a business. The stories are manifold
of entrepreneurs and small business owners becoming both frustrated and
discouraged by the amount of time it takes to secure capital, the rejections
they endure, and the lack of linearity and progress checkpoints over the
course of the fundraising process. Complaints we hear repeatedly from
entrepreneurs regarding fund raising include the following: The Frustration
of “Maybe”, It is common for a prospective investor - either an individual
investor or a venture firm - to show enthusiasm for an opportunity upon
initial review and then to leave the entrepreneur in limbo - forwarding
neither a definitive "no" nor a definitive "yes" to the investment proposition.
 Thus, Lack of Urgency. A great challenge in raising capital for a private

company is the lack of natural urgency. Because there are so many more sellers of
private company stock than buyers, attempts by the seller to create urgency by
setting time periods within which the investment must be consummated and/or
limiting the amount of stock that can be purchased are often viewed by buyers as
simply sales techniques and are not credible. The mindset among investors is
often if it is an attractive opportunity today then it will still be an attractive deal
next month. This is especially true for emerging company investments, for which
the most likely exit is via a sale of the business or a public offering, events most
likely to occur 3-5 years or more in the future.

 Raising capital is difficult is not easy since getting one is just not for the
money. It involves an understanding between two or more parties who trust and
support each other’s idea. Think of plan B to back up your business in case raising
capital would be very difficult to generate from the sources you’ve already
considered. When you lose the motivation to raise capital as you deem it difficult,
just think that if you cannot obtain financing, you keep looking; if you cannot
create a new idea, you keep thinking; and if you have trouble forming your
business family, expand your horizon. The difficulty in raising capital can be
surmounted with patience and determination to succeed in the business.


3.0) Reference
 http://www.growthink.com/content/raising-capital-
why-it-so-difficult
 http://www.go4funding.com/Articles/Business-
Funding/Business-Funding.aspx
 http://www.brainmass.com/homework-
help/business/entrepreneurial-issues/189520

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SEGi College Subang Jaya

Name: Lim Chee Yang

1.0.1) Nine method of raising capital in small

2.0) Why small business have difficulty in

1.1.1) Nine method of raising capital in

Fifth method, incorporating your small business, many entrepreneurs decide to

Eighth method, small business investment companies, Small Business investment

2.0) Why small business have difficulty

The problem of small businesses not having ready access to sources of

One consequence of these difficulties may be a short-term funding sources,

 Raising capital for a startup or small business is without question one of

 Thus, Lack of Urgency. A great challenge in raising capital for a private

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