Ways to Finance Your Business

With so many types of business financing available today, it is advisable to check carefully which type is best for your specific purpose.

The most traditional type of financing is debt financing. This is a straightforward loan that is repaid with interest over a certain pre-determined period of time. Generally, it is not an unsecured loan and will require some form of collateral against default. Debt financing can be either short or long term.

Your business may qualify for a line of credit. This loan is generally attached to your chequing account and can help when your cash flow fluctuates greatly. Some business entrepreneurs have secured lines of credit using their personal assets as collateral.

The easiest money that is available quickly is borrowing from your credit card. Although the cash is available immediately, the rates of interest are extremely high compared to commercial loans. This truly should be a last choice option.

Often, a supplier of equipment or machinery will offer financing for your purchase by providing payment terms of 30 – 45 days or extended payment plans with interest. Merchandise is sometimes sold on consignment whereby the buyer only pays for merchandise that is actually sold.

Equity investing involves funding by investors who, in return for their investment, receive a share in the ownership of the business as well as a percentage of the profits. Generally, equity funds are unsecured against the company's assets. If a business owner is trying to raise a large amount of money, it may be possible to use both equity funding and loans against assets to secure the needed amount.

Depending on the type of business you own, there are various types of equity funding available. Angel investors generally are wealthy investors who invest in small businesses and are looking for a healthy return on their investment. Venture capitalists primarily invest in high-tech or leading edge businesses in return for partial control and management.

Large businesses seeking finance may sell shares of their business on the stock exchange. Profits from the company's growth are shared among the shareholders.

Whichever method you choose, be sure that you and your financial advisor examine all the options carefully before any cheques are written.

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Alternative Financing For Your Business

The story is much the same for many a small business looking for credit today. After all, credit is the oxygen that many businesses rely upon. Traditionally, the source of that credit was the bank. However, the times are changing and many businesses have begun to realize that banks may not be the best resource.

In order to stay afloat, banks have made their lending procedures quite rigid. The rules and criteria are simply not realistic for many small businesses. As such, several unconventional forms of financing are available to small businesses. Business owners admit that they may make less money but unconventional financing allows them to maintain their businesses during these rocky times.

An asset-based loan (ABL) is one such form of financing. Most applicable for a manufacturing business, this type of loan allows the owner to use existing merchandise as collateral for the loan. Customers order new merchandise based on the existing products. In the worst case, the owner would have to sell his inventory to repay the loan.

Another method on the market is contract financing. In this scenario, the lending institution finances the purchase order, rather than the manufacturing process. After completion of the transaction, the lender receives an agreed-upon percentage of the profit.

The need to seek alternative financing methods has forced small business owners to carefully examine their businesses. After all, if the business was stable, there would be no problem securing bank credit. The banks are in the business of lending money that will be repaid. The silver lining in the cloud is that small businesses are becoming more professional. In the long term, this can only benefit them and the financial community.

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