Obtaining the right type of financing to fit your specific business needs can often be a challenge. When looking for business finance solutions, there are several options available, but where should you look for the best answers?
We recently wrote about small business financing options, with reference to the Small Business Administration or SBA, which offers a good deal of financing information. Obviously, a traditional loan from the bank is an excellent option if you are able to qualify. In order for your business to prosper, it is important that you have access the right resources to take on new customers, fulfill existing orders, and expand your present operations, while continuing to be profitable and efficient.
Some scenarios that prompt entrepreneurs to start looking for financial solutions can include:
- Starting a business
- Financing day-to-day operations
- Growing existing client base
But what is the right approach for your business? There are a myriad of options, including:
- Traditional bank loans
- Small Business Administration loans
- Accounts receivable financing
- Credit card loans
- Angel investments / Venture capital
- Private Funding
Term loans are often popular when companies are looking to expand, refinance, or simply need more permanent working capital. The ability to repay over a fixed amount of time can be appealing, apportioning out the amount owed into easily manageable amounts.
Angel investors have become a popular source of funding also, and are usually private groups or individuals who are willing to invest capital in start-ups or companies with new and innovative products or services. According to the Angel Capital Association, 298,000 investors invested upwards of $24 billion in about 71,000 deals in 2013.
We have discussed the use of credit card financing in other blogs, but it is worth mentioning again, since it is a viable source of financing for businesses. Some offer incentives such as no annual fee, or awards points. It is a useful short-term option.
When your business is looking for a cash flow injection, factoring, or accounts receivable financing is also an effective form of financing if your company has many invoices outstanding, but is experiencing a shortage of readily available cash to meet monthly commitments. The process can be simple, and easily explained. Accounts receivable financing consists of selling your accounts receivable or invoices. Receivables are the payments owed to you by customers to whom you have extended credit. The factor buys the receivables and gives you a percentage of their total value, and advance on the money owed. When customers pay the factor, the remaining amount is paid to your company minus the cost of factoring.
Each type of business financing has its merits. It is always important to look very carefully at the small print to make sure you understand exactly what type of loan or line of credit to which you are committing your business.