Financing A Business: Have You Thought Of These 3 Ways

If you're company needs cash whether it's an established business or a start-up

, be creative. Look beyond bank loans when you're looking for money for starting a business. Here are three methods for financing a business that may help.

Investor Advertising

No, this isn't advertising for an investor. Again, this works better with consumer products that require substantial advertising, such as infomercials. You have the investor pay for the advertising and in return they receive a share of the revenues generated from the advertising. The orders have to be independently verified. Often the investor will demand that all the money generated from the orders be placed in a separate bank account, the investor's share is deducted first and the remainder sent to you. The share to the investor can be substantial from 20 to 50% of the sales generated.

Friends, Family And Yourself

This is probably the most widely used source of capital for small and start-up businesses. Any capital provided by friends, or your family, should be treated in a businesslike manner. If they're buying equity in your company, then provide your business plan and disclose all the risks. Have them sign a statement that says they've received the business plan and recognize this is a risky investment. If they're lending money to you personally to put in the company or lending directly to the company, have a loan agreement prepared with market rate interest and a repayment schedule. You can defer the interest for a year or make interest only payments if cash is tight.

Realize that an outside investor most likely will not recognize that debt and allow it to be paid off with funds they provide. This is especially true if you've loaned your company money -- an investor most likely will not pay you off or allow the company to pay you off until the company has reached positive cash flow.

Home Equity Loan

Quite a few of us have established equity in our homes, sometimes tens of thousands of dollars of equity. Most mortgage companies are happy to lend owners a portion of that equity with no constraints on how we use the money. These days, refinancing isn't a struggle, and if your credit rating is good, you can have the cash in hand within 30 days. Or you can get a commitment for the loan of a second mortgage and draw down the money as needed.

There are tons of scams in this area, especially if your credit isn't A+. And keep in mind, if you default on the second mortgage, you can lose your home for much less than the value.

Don't be limited when you're looking for financing a business or expanding your company.

by: Dee Power

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