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Small Business Financing:

A big challenge for most new small businesses is
finding financing to enable them to grow into the
company they want to be. The goal of most
businesses is to grow, whether solely make more
money or simply to accomplish their mission on a
bigger scale. This is often a tough challenge, and
getting tougher. In this article we’ll explore the types of
financing that may be available and what the
advantages of each type may be. In later articles we’ll
explore the specifics of some of the more promising
sources of funds and how to position your company to
acquire that funding.  

Financing will generally be in one of two forms, debt
or equity. Debt will usually be in the form of a loan
from a financial institution such as a bank or other
individual/entity. Equity can be from a venture or angel
capital fund or it could come from an individual as
well. It will not come from you corner bank, however.

Let’s take a look at different types of debt/loans that
you may obtain and where they will come:

Operating / Working Capital Loan – this is a loan that
provides the liquidity to buy such things as inventory,
advertising, general expenses such as salaries, office
supplies, etc. This type of loan is needed because
even though a business may be profitable, its capital
may be tied up in other parts of the business, such as
real estate or plant and equipment.  

Capital Loans for real estate or equipment. The
equipment could be anything from computers to
manufacturing equipment. Loans for this purpose will
generally require that the purchased property are
pledged as collateral for the given loan.  

Factoring loans – these are loans made to provide
you with immediate access to your sales/revenue
funds, with the loan made with accounts receivables
used as collateral.

Loans to purchase existing businesses/franchises. As
stated, they are loans to purchase business from
other owners or to purchase the rights to conduct
business in a certain location or manner with an
existing model from a franchiser, such as McDonalds,
for example.

Keep in mind that any of these loans will likely only be
made based on the creditworthiness and possibly
collateral of either the company, if its finances and
track record are adequate, or of the owners.  Many
small business owners use their own capital to start
them. They may use their own personal credit such as
a home equity line or a second mortgage on their
home, to raise funds for their business. Small
business terms tend to be from two to ten years.

You can borrow the money from your own retirement
account. If you have a 401k you can usually borrow up
to 50% from your own account to use for any purpose
– with up to five-year term to pay it back. However,
you will need to pay it all back at once if you leave
your job -  a big hitch since you probably intend to be
in your business full time. A better option may be to
start a trust that allows you to transfer 50% of your
401k into the trust. It in turn invests in your business.
No IRS penalties or payback into the 401k are
necessary. Of course, you must be willing to risk your
own retirement money in your business with all these
401k options.

What institutions make these loans? These days there
have been so many combinations of different bank
types and rule changes concerning the types of loans
they may make, that you could get these loans from a
number of different sources. Your local savings and
loan institution, commercial banks, finance
companies, and wealthy individuals are all
possibilities. Credit Unions may also be a good
inexpensive source of home equity type financing.  


Click here for Part Two Small Business Financing.

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_________________________________________
Small Business Financing. Types and
Sources of Financing. Where to look
based on the stage of your business.   
Part One.
Have Questions? Our consultants are available to help you
with any financial question. We can also provide in-depth
consultation concerning any financial issue facing you. We
can help. Please contact:
Best-Financial-Advice.com
Back to Top
Have Questions? Our consultants are available to help
in-depth consultation concerning any financial issue
facing you. We can help. Please contact:
Best-Financial-Advice.com
Have Questions? Our consultants are available to help you with
any financial question. We can also provide in-depth
consultation concerning any financial issue facing you. We can
help. Please contact:
Best-Financial-Advice.com
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