What options are there for funding a small business?

West Palm Beach FL

11 October, 2021

1:01 AM

Description

Whether starting a new business or growing an existing venture when it comes to business funding, it's crucial that you understand the options available to you for funding your business. Equity based finance is of course not the only option when it comes to raising money for your business. Once you have compiled your business plan, these may be a few other options you can to consider: Venture Capital One problem many new businesses face is raising sufficient capital. A business in it's primary phase will also face a difficult challenge getting a bank loan. One alternative is venture capital. Venture capital firms offer capital in exchange for equity in a company. This type of financing is ideal for new businesses since venture capital firms focus mainly on the future prospects of a company when banks use past performance as a primary criteria. Option 2
Asset Based Financing Asset based lending has become increasingly popular as a means of financing growth and providing working capital. Asset based financing is a general term whereby a lender accepts as collateral the assets of a company in exchange for a loan. Most asset based loans are financed against accounts receivable and less often, against inventory since receivables are among the most liquid of a company's assets followed by inventory. Receivables are favoured by lenders since they self-liquidate in a short period of time by themselves and are not susceptible to problems such as shrinkage or physical damage. Another type of asset based lending rapidly gaining popularity is factoring. Factoring is defined as the purchasing of a company's accounts receivable on a non-recourse basis. Option 3
Long Term Debt Long term debt is one of the initial financing avenues a company should pursue. Most long term debt takes on the form of a loan where the interest and part of the principal are paid back in equal instalments over the life of the loan. Some of the sources for business loans include the following: commercial banks government sponsored loan programs small business investment companies private lenders Option 4
Lines of Credit A line of credit loan is designed to provide short term funds to a company in order to maintain a positive cash flow. Then, as funds are generated later in the business cycle, the loan is repaid. Most commercial banks offer a revolving line of credit, where a fixed amount is available. As funds are used, the "credit line" is reduced and when payments are made, the line is replenished. One advantage of a line of credit is that the no interest is accrued until the funds are withdrawn, but the line is immediately available for the company's cash flow needs. Option 5
Letters of Credit A letter of credit is a guarantee from a bank that a specific obligation will be honoured by the bank if the borrower fails to pay. Letters of credit can be useful when dealing with new vendors who may not be assured of a company's credit worthiness. The bank would then offer a letter of credit as an assurance to the vendor of payment. Although no funds are paid by the bank, the credit requirements for a line of credit and a letter of credit are similar. Option 6
Loan Workouts A loan workout is the process of repaying a problem loan in a fashion that is most agreeable to the lender and the company. Among the Options involved in a successful workout are maintaining communication with the lender, creating a revised payment schedule, and forming a workout team composed of the company's management, representatives from the lending institution, and legal counsel to manage the process. One of the initial Options in workout proceedings is to recognise that repayment of the loan will not occur. The earlier the company recognises that a problem exists, the greater their flexibility in dealing with the problem. Another type of equity financing is a small company offering registration or SCOR. Since the laws governing private sales of securities are somewhat restrictive, SCOR's provide a means of selling common stock to the public. Companies can trade their common stock over the counter rather than deal with the difficulties that initial public offerings face. In addition to the above organisations such as the Investors Network may be the ideal solution for an organisation looking to meet with angel investors or venture capital firms.