Tuesday, April 1, 2014

Financing for a Small Business

Financing for your business can come in the form of debt, equity
or other alternatives.
Here's a guest post by Matthew Deutsch that discusses alternatives for financing a small business. According to studies conducted by the Small Business Administration and Kauffman Foundation, lack of capital is the issue that business owners point to the most as the reason for their business' failure. - TCW

Financing for a Small Business

There are many different ways that you can obtain financing for a small business. Most entrepreneurs initially go to a bank in order to receive the capital that they need in order to launch or expand a business. However, given the current credit market environment, many small business owners have had significant trouble as it relates to obtaining the money that they need from lending institutions. As such, one of the most popular alternatives to using a bank loan to start a business is to work with private investors. However, it is should be noted that these investors will require a significant amount of equity as it relates to providing capital to your business.


If you are a company that is already in operation then it may be in your best interest to first work with a lending institution as having a proven track record can ameliorate a vast majority of the risks associated with paying interest and principal back on a monthly basis. This is especially true if you have a significant amount of built up equity in your business. It should be noted that most banks and financial institutions are going to want to see a tremendous amount of tangible assets as it relates to your business. There is always going to be a need for collateral when you are working with a traditional financial institution.

When you are working with a private investor the most important issue to note is that your business must be economically viable. If your business does not or will not produce a profit that will sustain a 20% year on year return on investment then you may find that you are going to have significant trouble finding investors that are willing to put capital into your business. This is primarily due to the fact that the risks associated with small business investing is extremely high. As such, you should focus on how you intend to manage risk if you take capital from an angel investor or other type of private funding source.

The final methodology of financing a small business is to use your existing lines of credit. This may include credit cards and home equity loans that come with a low to moderate interest rate. Many of the best small businesses were started this way, and although the personal financial risk is high, this type of financing may come with far fewer expenses. We are going to continue to discuss creative ways that you can finance your business on an ongoing basis as it relates to getting capital for your new or ongoing venture. Angel Investor List Download. No registration required! Includes Free Business Plan Template.

Article Source: Financing for a Small Business

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