Most people today know that unfortunately money doesn’t grow on trees and as I keep trying to tell the Macy’s Collection department, “I can’t just print money” Especially in today’s economy it can be very difficult to have enough capital to even get your business started. My next few blogs will discuss some very different but all viable options for starting to fund your small business.
We will begin with the most common ways and move forward to the more difficult but perhaps more wallet friendly options available.
Debt financing is financing from a bank or other institution that you must pay back. Traditional financing through a bank has become almost non existent. If you pass muster, banks can provide you with a loan or line of credit that comes with a repayment schedule and an interest rate. They will look carefully at your company’s cash flow, collateral and the liquidity of your assets. You need to have a sensible, written business plan, and you must know your financial situation inside and out.
Some banks that are still lending money have shifted a portion of their lending to federal Small Business Administration loans, which are set up to help small business owners obtain business financing so that they can continue to manage their small business resources when they can’t otherwise qualify for conventional small business loans, and carry less risk for the banks if the borrower defaults. This is a great option if you can get it because you don’t have to give up equity and it is available to companies that can’t get equity funding. As with anything there is always a downside as well which includes that you must pay interest, there is limited networking or “business savvy” value and it may require personal collateral such as a home.
Stay tuned for next time when we discuss grants and equity financing.