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On Capitalization and Why It is Vital in a Business’ Success
by: johnlair on
Date: Mon, 13 Dec 2010 Time: 1:17 PM
Capitalization has always been the first thing that pops into the mind of a start-up entrepreneur. It is through capital that the business acquires assets that will be vital in its future operations. Without capital, one cannot start a business venture.
Unfortunately, the events of recent years, particularly the financial meltdown that hit the economy really hard, made the effort of seeking business capital more difficult unlike in the past. Most banks, leasing firms and venture capitalists have become either reluctant to lend money to start-ups or stricter when it comes to lending and repayment rules. The road that start-up businesses are taking in terms of capitalization has become bumpier and more difficult to travel on.
Despite this, entrepreneurs are not discouraged. The iron-willed individuals that they are, they still find ways to gain capital for their business, believing that their venture is worth investing on and fighting for. This has given rise to the idea of taking credit card financing from non-traditional sources.
Credit card financing have been used by a lot of start-ups as a source of funding. The terms of these forms of credit are friendlier and less strict when compared to those coming from traditional sources such as banks. Such features make them very attractive to new businesspeople that either could not find interested investors or failed to secure a loan from a bank and other similar traditional sources of credit.
However, credit card financing is a very risky move. There are incidents when start-ups that failed got deeper in debt because of the credit card bills that they had to pay after using them in financing the business. This is the exact reason why a lot of business consultants and entrepreneurs are saying that although using a credit card to finance a business is good, especially in acquiring assets such as office equipment and supplies, it should be well-calculated and must remain temporary until a more traditional capital source can be tapped.
Credit card financing and other similar nontraditional sources of capital are slowly becoming popular to starting entrepreneurs these days. However, more stable and more permanent funding sources such as loans coming from banks or cash coming from interested investors will be more preferable in order to sustain the long-term viability of the business that they started. There is simply no reason for a start-up businessperson to go wrong, especially in capitalization.
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