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Raising Money For BusinessFor the past several years, it has been very difficult for entrepreneurs to raise capital for their new businesses. After suffering terrible losses during the 2008 credit crisis, banks were reluctant to lend money to anyone. Even for entrepreneurs who could raise funds, the lack of economic growth made it difficult to find customers and earn profits.
However, it appears that the economy is finally starting to improve. More than 600,000 jobs have been created in the past three months, which has helped to lower the unemployment rate to 8.3 percent. Gross domestic product increased by 3 percent in the fourth quarter of 2011, which suggests that consumer demand is increasing throughout the economy.
In addition to the improving economic statistics, low interest rates have made it very attractive for businesses to raise capital. The Federal Reserve, hoping to maintain strong economic growth, has maintained a loose monetary policy by keeping its federal funds rate at under .25 percent. This policy has made money extremely cheap, an ideal situation for entrepreneurs who are looking to raise funds for their firms.
Of course, low interest rates do not mean that the banks have weakened their lending standards; indeed, after the huge losses they suffered when the housing market collapsed, banks have become very wary of lending money to anyone with suspect finances. If entrepreneurs hope to secure capital, they must convince banks that they are good credit risks.
In order to do this, entrepreneurs must carefully track and manage their credit scores, an important figure that banks use to determine the riskiness of a potential loan. Business owners with low credit scores will find it difficult to secure a loan. Even if they do get a loan, the entrepreneur will be forced to pay a higher interest rate, an additional burden that will make it more difficult for the new business owner to succeed.
Before entrepreneurs go to a bank for a loan, they should monitor their credit scores. Without knowledge of this important information, the borrower will be in a weak position to negotiate with the bank over the terms of a potential loan. This ignorance could be very costly and could even threaten the viability of the business.
Entrepreneurs who discover that their credit rating is low should consider delaying their request for a loan until they can improve their financial situation.
Entrepreneurs who want to secure business capital must plan ahead and manage their finances properly. The task may be difficult, but this is the only way that an entrepreneur can maintain a high credit score and receive a loan on the most favorable terms.
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