How to Get and Secure Your Business Financing
Small businesses are the foundation of any economy and its future growth. But given the financial crisis and financial risk regulations, getting business financing is now almost impossible through traditional financial institutions.
Although the market has changed and adapted with these, there are a lot of new players providing businesses with new funding options. Each of these options has been targeted at a type of business with different types of operations.
The following should give you an overview of the different options for getting the funds you need to help with your working capital and cash flow.
Bank Funding and Loans
Banks are a good option for business owners who are running larger operations, with good credit and a very strong history. Unfortunately, they are generally not good for small businesses, where the approval rates are historically less than 20%, and even then collateral has to be involved. You’ll also need a good history, lots of paperwork and potentially a full business plan, just for applying for the loan.
Having said that, banks generally offer some other products that might be of assistance to your small business, such as an overdraft, credit cards and other custom products. These will generally assist you in getting funds for cash flow and day to day operations.
Credit Card Funding
In a situation where you have very good time management and very good credit, you will be able to get a collection of credit cards, and take advantage of their limits, free periods, rollovers, and even the rewards and points that the credit card offer.
Although you can not use a credit card just to get cash without high fees, you can use the credit cards constructively for your day to day costs, and keep your cash for larger purchases when needed.
Getting funds from an angel investor or another type of investor is often tempting, although this comes with a hidden charge. You are giving away your future profits, control of your company, and potentially your overall decision making power for the business.
These days, investor contracts are very complex, and there might be a lot of hidden clauses that really allow investors to overcapitalize on your success.
Yes, investors can be a good option, but know what the pros and cons are with the each of the investors, and always read the fine print.
401Ks – Retirement Savings
IRAs and 401ks can be a good resource for your business. It would require rolling your funds over into a corporate retirement account. This process is not that simple, for the simple reason that you need to be careful about not getting caught up paying taxes and fees on this capital.
If this is an option for you, see a financial expert and know what you are risking for the future.
Line of Credit and Alternative Funding
Alternative funding has pros and cons attached to each type. One of the biggest advantages is that these funds are provided without all of the strings attached, so you are not risking losing anything. You don’t give away a part of your company and you can use the funds how you see fit, to growth your business or manage your cash flow.
The unsecure line of credit will allow small amounts of funds to be pulled out repeatedly, allowing the payments to occur over time, and to be split up. They’re a good choice when you can buy something over a period of time, or you need funds for liquidity, by spreading your costs out over manageable payments.
The alternative is invoice funding, which allows you to get the capital you need in one sum, and pay it over time.
These fund are cheap and expensive at the same time. The funds generally come with a high fixed fee, but also they come without all the hidden interest rates, additional fees and personal liability. They generally have a slightly higher cost associated with the risk.
They are a great option for your small businesses if you want to grow your business, purchase or invest into your future profits, but don’t want to risk your personal assets, credit, debt collectors as part of your decision.