Types of Small Business Financing Options

Small business finance involves both equity capital and debt capital. Many different techniques exist to harness both forms of capital for a business. Many small business owners start out with debt capital. This can be achieved by taking out a loan for general operations such as buying equipment, furniture, and fixtures. However, many small business owners also find that they need to tap into equity capital in order to expand their business or take on additional employees.

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Types of Small Business Financing Options

Small business finance involves both equity capital and debt capital. Many different techniques exist to harness both forms of capital for a business. Many small business owners start out with debt capital. This can be achieved by taking out a loan for general operations such as buying equipment, furniture, and fixtures. However, many small business owners also find that they need to tap into equity capital in order to expand their business or take on additional employees.

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Small business finance programs are available for many of these techniques. These programs often have guidelines that must be followed, including the amount of money that must be committed to the venture and the percentage of equity that must go to the business. Most programs will require that the business plan be submitted to them as well as financial projections and analysis. There may also be reports to be filed. All of this is information that must be carefully managed throughout the life of the venture.

For those who are not working with a lending agency, there are a number of non-traditional options for obtaining small business financing. Entrepreneurs can seek advice from other entrepreneurs about raising capital. Networking among business owners can provide helpful advice to entrepreneurs who are considering different options. Entrepreneurs may also be able to tap into cash flow from other business, which can often provide immediate cash. Non-traditional loans such as lines of credit are also an option for those who are unable to obtain a conventional loan.

A number of venture capital financing companies provide assistance to small businesses on a need-to-know basis. They can be reached by phone or online. Many offer advice about how entrepreneurs can obtain capital for their business through banks and credit unions. These companies may also provide assistance with finding the appropriate lenders for small businesses. Lenders will review a list of documents that have been provided by the entrepreneur and then give an approval or denial of the application.

Angel investment is another option available to entrepreneurs who are looking for small business financing. The advantages include the potential for higher fees and less documentation when it comes to securing angel investment. There are some disadvantages as well such as waiting until the entrepreneur has a sale or acquisition date to receive money. In some cases, entrepreneurs may not know in advance if they will receive funding or not. However, with a carefully cultivated network of contacts, angel investors can help provide information about progress on a regular basis.

Many entrepreneurs turn to traditional sources of start-up capital such as banks and equity financing firms. An angel investor would be an individual with direct access to capital who is willing to invest in small businesses that are having financial difficulties. Typically, angel investors will look for start-up businesses that have strong management teams. They will also want to see that the business plan is feasible with a plan to generate profits within the first year to two years of operation. Many start-ups require financing during this period, and angels may be willing to provide start-up capital as a type of equity financing.

The third type of small business finance is through personal savings, personal loans, and lines of credit. Personal loans are generally made with a co-signor, which means a borrower’s life partner or primary driver. Personal loans may also be obtained from relatives or friends. The line of credit is a revolving credit account that may not be secured by collateral. Small businesses that use this method of small business finance are advised to obtain credit counseling before making any major purchases.

Private equity is a capital option that many private investors are willing to provide for a company. Capital from an investor is often based on the business owners’ personal credit score. To obtain small business finance from private equity investors, a business can be sold for a substantial amount of cash to raise the needed funds. However, private equity loans can also be used for a number of different purposes such as paying off business debts and using the capital to make expansion or purchase of additional office space. A number of private equity investors are also willing to offer a large amount of capital to businesses in need of quick start-up funds.

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