Small Business Finance - Finding the Right Mix of Debt and Equity.

Financing a small company could be most time intensive activity for any business proprietor. It can be the most important a part of growing a company, but one must be careful to not let it consume the business. Finance is the relationship between cash, risk and cost. Manage each well and you will have healthy finance mix for the business. Develop a strategic business plan and loan package which has a well developed strategic plan, which pertains to realistic and believable financials in Malaysia.

Before you can finance a business, a task, an expansion or an acquisition, you must develop just what your finance needs are. Finance your business from a position of strength. As a business proprietor you show your confidence in the industry by investing as much as 10 % of your finance needs from your own coffers. The rest of the 20 to 30 percent of your cash needs can come from private investors or investment capital. Remember, sweat equity is anticipated, but it’s not a replacement for cash. Depending on the valuation of the business and the risk involved, the private equity component will want on average a 30 to 40 percent equity stake in your company for 3 to five years. Quitting this equity position in your company, yet maintaining clear majority ownership, will give you leverage within the remaining 60 % of your finance need. The rest of the finance can come in the form of long term debt, short term capital, equipment finance and inventory finance. By having a strong cash position inside your company, a number of lenders are going to be open to you.

You should hire an experienced commercial loan broker to do the finance “shopping” for you and offer you having a number of options. It’s important at this juncture that you simply obtain finance that matches your business needs and structures, instead of attempting to force your structure right into a financial instrument not ideally suited for your operations. Using a strong cash position inside your company, the extra debt financing won’t put an undue stress on your cash flow. Sixty percent debt is a healthy. Debt finance can come in the type of unsecured finance, such as short-term debt, credit line financing and long-term debt. Unsecured debt is typically called cash flow finance and needs credit history. Debt finance may also come in the form of secured or asset based finance, which could include accounts receivable, inventory, equipment, real estate, personal assets, letter of credit, and government guaranteed finance. A customized mix of unsecured and secured debt, specifically designed around your company’s financial needs, is the advantage of using a strong cash position.

The money flow statement is a vital financial in tracking the results of certain types of finance. It is advisable to have a firm handle on your monthly cash flow, along with the control and planning structure of a financial budget, to successfully plan and monitor your company’s finance.