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Funding is a critical step in getting a business off the ground

On Behalf of | Feb 15, 2022 | Business Formation & Planning

Formally creating a business is only the first step of a lengthy and difficult process. Businesses also have to set up agreements with suppliers and customers, and there may also be issues with insurance and the hiring of employees.

But the biggest problem for a startup business is likely to be financing. Very few people actually have enough cash to keep a business operating while it goes through its growing pains, so they will have to find other sources of funding.

Basically, businesses have two sources of outside funding. Specifically, they can get a loan or they can seek out an investor.

For those in New York City or the surrounding areas who might be new to business, a commercial loan in many ways is a lot like getting a mortgage on one’s house.

Basically, the lending institution fronts all or most of the money to run the business during its infancy or may loan money for a specific project or task, like purchasing real estate for the business.

In exchange, the business will promise to pay the loan back, with interest, over time. If it does not do so, the lender will get all or some of the business’s property.

In commercial loans, the business owners will also usually front their own property and make a promise to pay the loan if the business fails.

Investors such as venture capitalists, on the other hand, will provide money to a new business in exchange for stock or other tradeoffs.

For example, an investor may want some management input into how a new company is run and may even insist upon sitting on the new company’s board.

What are some legalities involved with financing my business?

Commercial loans are more complicated than, say, an automobile loan or even a mortgage. The application process will require attention to legal detail, as will the review and possible negotiation of the loan’s terms. Government-backed loans may require additional attention.

Likewise, agreements between a new business and its investors will require careful evaluation and consideration.