10. Reading. Financial system

Why do companies need capital? Well, there are at least two reasons. Raising capital allows start-ups to support their projects and larger companies — to grow financially and make more profit.

What are the ways for a start-up to find money? There are a few of them. An entrepreneur can use personal savings. In this case it's wise to set aside at least six months worth of the expenses such as everyday expenses, insurance and so on. If a person doesn't have the opportunity, he can borrow some money from friends or family. In this case it's better to make this official and sign a loan agreement. If this isn't an option too, a business can be started with the help of a bank loan. Some banks are hesitant to give loan to small businesses, but it's worth a try anyway.

And the fourth way to get some money for the business is attraction of investors. A start-up can find investors, so they could put up some money to the business. Of course, the investor should see the potential of the business, because he has his own goal — to make much of his investment. It’s called venture capital.

Selling bonds can be an effective way to raise money. The firm has to pay back the investor not only the money given, but also interest. So it’s a kind of a loan, but the interest rate is lower than in a bank.

  

Crowdfunding is another option. It has become quite popular recently. If people really value what the firm produces, they likely would support the company. The advantages of this way include almost no financial risk and there's no need to give away any part of your business (unlike the investor option). But there are disadvantages too. Firstly, the campaign can simply fail — due to the lack of interest or some other reason, but still. Secondly, crowdfunding isn't helpful for all types of businesses. For example, a musician can crowdfund his album, but if you want to open a café, it might not work at all.

Whatever strategy the company chooses, it’s always important to keep the books in order. Investors usually check them before giving the money. Also it takes a great deal of creativity to take out an investor. The point is to make him or her see that your business is unique.

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