subject: Knowing Your Financing Options [print this page] When your business is growing, it's gobbling up cash in a pace that even you couldn't keep up with at times. In moments like this, it is crucial then that you know well what your financing options are.
Banks and similar institutions
Banks lend money to businesses. They do not invest in the businesses. Banks are one of the better know traditional financing sources and are very conservative lenders. They do not grant loans to start up business unless certain stringent requirements are met.
Small Business Administration
Small Business Administration (SBA) caters to the market that banks do not entertain. SBA mostly guarantees small bank loans to minimize bank risks. Basically, its service could be categorized as loans of general purposes and loans for fixed assets acquisition.
SBA mostly caters also to existing businesses for expansion and not to neophytes. Its loan pre-qualification program is a tad more lax compared to other financing sources but relies more on personal credit-worthiness.
Credit Cards
According to Small Business Administration's study of 1998 businesses, around 71% of businesses use credit cards to finance businesses. Credit cards are easy sources of funds; require no paper works and ideal for small office equipment acquisition. But with credit cards you get charged a high interest rate, it depends on your personal credit worthiness, and it affects your personal credit score.
Angel Investors
Angel investors are private, successful entrepreneurs with the capital to spare. Often times, these angels have strong relationships with those they sponsor and they could be quite firm on being active advisers to the businesses they support. Angel investors are keen on supporting start-up businesses but usually make smaller investments; thus limiting the capital base of the business.
Venture Capitalists
Venture capitalists invest other people's money in extraordinarily high growth emerging or new enterprises. They expect high returns in short periods of investment. They take active involvement in the venture they are investing in and often time, would either bring in experts of their own if they are not pleased with the current ones the businesses have or worse, they'll withdraw their investment.
Vendors
Vendors could be another good source for financing. They could help by simply giving you better terms whenever you purchase from them. So start scouting for good vendors. They could be good financing partners.
Home Equity
An easier, faster, and cheaper way to get credit is by using your home. For many entrepreneurs their home has become one dependable source of financing, less all mortgages, of course. Using your home as your business collateral exposes your family though to business risks, and may harm your relationship with your spouse. Should you need to sell your house, you would need to settle your debt first. And with the current state of the real property industry, you may want to think hard first before considering using home equity.
Friends and Family
These are people who believe in you and in your endeavors. And they are willing to take the risk to help you attain success. They may offer loans or investments, either way; they are an easy source of money. But being non-business people, the amount you may raise from this source could be limited. Be careful also that in transacting with them, you will not endanger your relationships.
Others
You could try peer-to-peer lending, also called social lending. In social lending, individuals interested to invest their funds with higher returns go to the social lending site. This is the same site where those looking for loans with lower rates go. The prospective debtor then goes online to apply for a personal loan while interested creditors will start bidding. If a particular loan application gets enough bids, funds are placed on the debtor's bank account, and payment gets deducted from the bank account automatically. Of course, the debtor has the prerogative to choose which creditor has the most attractive bid or credit offer, a win-win scenario for both lenders and borrowers.
Merchant cash advances or business cash advances is a cash advancing system where the amount loaned gets repaid based on the future credit card sales of one's company.
With all these options, it's now up to you to weigh and choose which outfit or a combination of these suits you best.
