Exploring the world of business financing can be an exciting and confusing adventure. If you are just beginning to search or you have been searching for business financing for some time without success, taking a fresh approach may bring you the results you want.
What are your options and how do you qualify? These two questions will be easier to answer once you identify the following:
1. What is the purpose of the business financing?
2. How long have you been in business?
3. What is your annual income?
4. How many and what type of assets do you have, i.e., account receivables, machinery or real estate?
5. What type of organization is your business, i.e., sole proprietor, partnership or corporation?
This information will help you shop for your business financing smarter. Even if you are in dire circumstances, a solution is easier to find if you keep a cool head and have your facts straight. Business financing can be provided from a variety of sources; each has its own requirements and carries its own benefits and drawbacks. One factor will play a key role in which source you choose will be TIME-how quickly do you need access to the funds and when will you be able to repay?
The next factor to consider is the AMOUNT of funds you require-some of the sources you can use will be eliminated if you want less than $10,000 or more than $275,000. Along with the amount of money, keep in mind that in most cases there will be an interest rate applied which increases the total amount of money you will be responsible to repay.
With all of these facts in front of you, re-think your business-financing proposal. Put yourself in the position of the bank, venture capitalist or government agency-is your business a high, medium or low risk financing project? Remember business financing is a LOAN not a grant: whomever you approach wants to safeguard their interest.
Before you approach these type of business financiers, here are three of the most easily negotiated sources of business financing:
Accounts Receivable Factoring
If you need business financing quickly, it makes sense to look for ways to get the cash you need without taking on more debt than necessary. Account Receivable Factoring is one of the first options you should investigate if your company is in need of cash. For a fee, there are factoring companies that will advance you up to 90% of the total value of one or all of your account receivable invoices.
These companies have extremely fast response rate, usually you can have cash in hand within 72 hours. When your customers pay their invoice, the factoring fee is deducted and the balance is paid to you. Some factoring companies will extend a credit line to your company ranging from $25,000 to $15,000,000.
Credit Card Sales Loans
After account receivable factoring, if your company accepts credit cards for purchases, there are companies that will loan you up to $150,000 depending on your credit card sales history. With this type of financing arrangement, you pre-qualify for the loan with only the necessary information to receive a preliminary loan quote. Once you qualify the financing is usually available within 10 business days. These companies collect a fixed amount from each of your credit card sales until the loan is repaid.
Personal / Private Loans
There are business success stories that started with a loan from family and friends becoming profitable, making everyone happy. But the other side of the story is not so pleasant; when the idea doesn’t capture the market attention and the profits never materialize, it creates an uncomfortable situation for everyone. In both of these situations a written agreement can make all of the difference between relationships remaining civil or becoming difficult.
When you ask a friend or family member for a loan, treat this request with the same respect as you would your bank. Be prepared to discuss your business, how you plan to spend and repay the money, in addition to how much you interest you will pay. Once you reach an agreement, consult your attorney and have the terms put in writing.
Finding your business match
Although we have discussed 3 viable ways to stimulate your business cash flow, they basically serve to spark your imagination to begin to view your financial management more creatively. These options work well for short term financing, that will “buy” you some time to plan your strategy for utilizing the more involved long term financing options that are available to help your business thrive.
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