Finding The Right Business Finance Option For A Small Business

March 18, 2011 by admin · Leave a Comment
Filed under: Business, finance 

It’s no mystery that finding the right business finance option to get the funding needed to start up a small business comes to the minds of every entrepreneur.  Though business finance options abound yet it is important to get the right type of funding for a certain type of business.

As a business owner, you need to know that going for the wrong type of funding can lead to undesirable scenarios like feuds between you and your financier, shift of control that is out of your hands and waste of time and money and other unwanted consequences.

The thing is you need to find and choose the best business finance alternative that best fits your business.  In order to help you find the right funding option, we have highlighted a range of financing options which you may find suitable for your business.

Friends and Family

If your loan was not granted, consider asking a rich relative or friend for a little help.  The best thing about getting a small business financing from friends and family is that borrowing a small amount of money is quick, hassle free and has no legal expense.  However be careful, remain professional and keep in touch.  For sure you want to preserve your relationships with friends and family so make sure to repay the money that you have borrowed.

Debt Financing

Nearly all new small businesses are funded with debt financing through a lending company.  In case you pass muster, banks can lend you a line of credit.  Know that this loan comes with an interest rate and repayment schedule.  But before providing you a loan, they will carefully look at your company’s cash flow, collateral and liquidity of your assets. Aside from that you also need to have a good business plan and know the inside and out of your financial situation.  If you want to increase the odds of your success to get your loan granted, you need to establish a relationship with your banker prior to your request for loan.

Grants

In case you are starting a new business from scratch or in the technology game then securing a grant through the Small Business Administration is the best way to go. Note that SBA does not grant loans, they do guarantee them.  They considerably lower the lender’s risk thus making them capable to provide a loan.  The prequalification program of SBA is meant to aid new and emerging business, disabled business owners, low income borrowers, veterans, exporters, rural, and specialized industries.  In these times of economic crises, an entrepreneur should not overlook ‘free money’.

Venture Capitalists

Approaching the venture capitalists is a good approach to take in case you are beyond the startup phase, have initial revenues coming in, a quality team in place and have a clear path to finally sell the business.  But know that the venture capitalists now have higher standards than ever.  They remain a serious player in the investing world until now.  They offer a very time-sensitive funding and makes sure they quickly get their money and profits.  In case you are planning for a meteoric growth and will need further business financing in the future to achieve it, they are indeed a great source.

Equity Financing

Even though debt financing is commonly preferred by business owners, yet there are still myriads of companies that are funded by private or institutional investors in exchange for an equity ownership stake.

Angel Investors

Angel investors can be your wings to raise capital, they fill the gap between friends and family and venture capitalists.  Angel investors now rarely even look at investments below $1 million.  They have made their name as being friendly and patient regarding their investments as well as by providing their business wisdom and valuable relationships along with their money. So why not get a knowledgeable business finance adviser to structure the deal.

Strategic Investors

Strategic investors can help in case you need to get to market quickly. They brighten the investee’s forecast for additional investment and success through adding value to the money it invests with its contacts, experience, and knowledge of market.  But you need to be aware that they can prohibit you from selling to your competitors, can swamp your business with opportunity, seduce you into reallocating your company’s resources in a lopsided way and even end their business relationship with you on an impulse! So make sure you know what you are getting into.

The bottom line is, choose wisely. Know that even some small business finance options can be complicated and risky and you need to make the right choice.  It is important that you do your homework; ask for the right amount, get the right source at the right time.  By doing this you can get the funding for your startup that is right for your business and be geared up to achieve business success.

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