Deprecated: mysql_connect(): The mysql extension is deprecated and will be removed in the future: use mysqli or PDO instead in /home/a26f9f83/public_html/articles/includes/config.php on line 159
Common Sources of Financing for Small Business > NetSparsh - Viral Content you Love & Share

Common Sources of Financing for Small Business

The choice of financing is an important determinant of whether a product reaches the market, or whether an existing business can survive. The choice of financing is an important part of being an entrepreneur and business owner, and the ability to raise cash when you have no or limited history takes skill and creativity. There are a number of sources of financing. The suitability of the alternatives depends on what stage you are at, and will change as the company matures from stage to stage. The following outlines the most typical forms available.

Yourself, Family and Friends

The most obvious and common start is for people to self finance. That means they either draw down on their savings or they use personal debt such as credit cards, credit lines or equity mortgages to finance their business. Family and friends are often used as a source of financing. Although they are not always in a position to properly evaluate the business venture, family and friends have long-time relationships and experience with the entrepreneur and are knowledgeable about his/her reliability and ability.

Strategic Partner

Strategic partners can not only provide a source of financing, but often they can provide an area of expertise that the entrepreneur does not bring to the table, such as operational or marketing skills. Naturally, the pitfall of a partner is that you do not maintain full control over the company and that sometimes there is a falling out between the partners. So it is important that you do your homework and choose your partner carefully.

Angel Financing

Angles tend to be freelance financers interested in loaning smaller amounts of money, say between $50,000 -$500,000. They can often provide the seed capital required to develop an idea to get to the point where a firm can obtain formal financing. Angel investors will also invest in growing companies that may have a strong revenue base, but are not yet established enough to get bank or other financing. Another benefit of Angels is that they can bring a lot of experience and industry contacts to the table.

Venture Capital

When firms approach venture capitalists, they are generally developed to the point where a venture capitalist can add value. The venture capitalists will generally sit on the board of directors, provide expertise and provide funding based on the attainment of milestones. They are generally interested in firms that can generate rapid growth ? and returns - over a few short years; your time horizon is generally 3-8 years.

Trade Credit

One of the largest sources of short-tem financing, trade credit occurs whenever you purchase from a supplier but do not need to pay for the merchandise for 30 days (or whatever the terms are). Trade credit can be expensive if you are foregoing discounts, but a new firm may not have much of a choice.

Factoring

Factoring is also a popular source of financing for growing firms. When you generate a receivable you may sell it to a factor who will then collect the receivable for you. Typically, you will get between 75%-90% upfront for the receivable and the remainder when the factor collects, less a fee.

Asset Based Lending

Asset based lenders will lend to businesses that lack sufficient cash flow to support unsecured financing, but have sufficient assets that can serve as collateral. Typically, the assets are accounts receivable and inventory, but can be equipment or other similar assets. The lender relies on the assets to repay the loan, not the cash flow of the firm. Fast growing firms who cannot get sufficient financing from a financial institution will be a typical client of an asset based lender.

Mezzanine Financing

Mezzanine financing is subordinated debt, a type of hybrid between senior debt and equity. As Mezzanine financing is typically high risk, it can be expensive. A typical target company generally has been in business for a number of years and has an established revenue base and positive cash flow stream. Often, a company may have reached its maximum level of financing from a lending institution and will obtain mezzanine financing to bridge the gap and finance their growth. The Mezzanine financer will subordinate its debt to the main lender.

Banks

By the time a firm can approach a bank they usually have been in business for a couple of years, have developed solid revenue, are earning profits and have a reasonable balance sheet. The bank will provide daily operational financing as well as long-term financing. Generally the cheapest form of financing, it can also be the hardest to get.

About The Author

Jeff Schein is a CGA and offers advisory services in the areas of business planning, business modeling, strategic planning, business analysis and financial management for new ventures and growing small businesses. Visit www.companyworkshop.com or mailto:jeff@companyworkshop.com.

In The News:

This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news

Forbes

Freelancers Help Small Businesses Grow: Two Successes To Learn From
Forbes
But, small businesses depend on freelancers too. Here's what LinkedIn had to say: β€œThe stats don't lie: 70% of small businesses have hired a freelancer in the past ... and 81% of these businesses plan to hire freelancers in the future. Reviewing ...


South China Morning Post

Hong Kong-born Canadian small business minister Mary Ng eyes ...
South China Morning Post
New minister of small business and export promotion is in Hong Kong to drum up support as Canadian firms seek to expand their Asian footprint.

and more »

Palm Beach Post

Small business impact in the larger economy
Palm Beach Post
The small business community in Central Palm Beach County is growing. Urban development and plans for road improvements are making areas more accessible and more attractive to consumers and out-of-towners. With the market recession of 2008, ...


American Banker

CFPB faces legal minefield in crafting rule on small-business loan ...
American Banker
The agency wants more information as it conducts fair-lending exams, but conflicting statutes make writing a data collection rule difficult.

and more »

DesMoinesRegister.com

Small Business Today: A big Harry disappointment
DesMoinesRegister.com
Small Business Today is a bi-weekly feature written by Tom Friedman, market president of First National Bank, Ankeny.

and more »

Tulsa World

Small Business Coalition planning for second Christmas tree lighting
Tulsa World
Krystal Hays of Yesterday to Now and the Small Business Coalition said the Christmas tree lighting will be at 7 p.m. November 24 in the downtown Triangle area. While the Christmas tree lighting will begin at 7 p.m., the final round of the Sand Springs ...


Mashable

Dell is running a sale that's great for small business owners
Mashable
If you're a small business owner, managing your expenses can be a tricky tightrope. Once you have your new desktop or laptop, you may still need a mouse, keyboard, or a backpack. So instead of just budgeting one big purchase, now you have three smaller ...

and more »

ABC27

Small business admin. tours York County flood damage
ABC27
HELLAM and CHANCEFORD TWP, Pa. (WHTM) - Officials from the Small Business Administration visited damage in Hellam and Chanceford Townships. The county hopes these agencies can assist residents who were severely impacted by the flooding.


Asbury Park Press

Small-business owners struggle to delegate
Asbury Park Press
When a business is large enough that the owner must delegate decisions and tasks β€” even to trusted employees β€” it can be a psychological shock, especially for entrepreneurs used to doing everything themselves. Many pale at the idea of asking managers ...


MyAJC

Small businesses are big targets for cybercriminals
MyAJC
Small businesses are the backbone of the U.S. economy, as the saying goes. Yet the owners of these businesses often don't consider themselves potential targets of cybercrime. Increasingly, however, they are.

Google News

Naming Your Business: 3 Tips To Ensure Success

If you are just starting your business, or if you... Read More

Small Business Failures in America - Cash Flow Issues

We are noticing an increase in the length of time... Read More

Accepting Checks in Your Business Virtually Risk Free

Most businesses accept checks as form of payment for goods... Read More

Small Business Survival Tips

No matter what kind of small business you have, you... Read More

Small Business No How - Dont Give Away the Farm

You're pretty proud of yourself! After all, only four months... Read More

Boat Detailing Tips and Procedures

Auto detailers are often asked to clean boats and detail... Read More

Small Business Marketing, According to Seinfeld

What could Seinfeld possibly have to do with marketing a... Read More

Pressure Washing Business and Post Fire Cleanups

Many have not experienced a fire up close. One year... Read More

Promote Yourself More Successfully

One of the great challenges for independent professionals and small... Read More

Small Business Operators - 7 Reasons You Should Change Your Accountant

A recent survey showed that only 28.7% of small business... Read More

Looking for a Business to Run in the New Revitalized Downtown Area?

Looking for a place to add a Quick Lube away... Read More

Building A Business That Works For You

Before you want to build your business, you need to... Read More

How Do I Choose The Right Business Opportunity For Me?

First you have to start with knowing your budget and... Read More

Arent Small Businesses Lucky?

Why? Because they have access to world class public relations... Read More

Franchising VS Business Opportunity; What is the Difference?

The modern Franchise business model and the much different business... Read More

More Business Card Marketing

If you are worried about how many different business cards... Read More

Small Business - A Thing Worth Doing Is Worth Doing Badly

A thing worth doing is worth doing badly. Yes I... Read More

Winning in Business - Lessons from Lance Armstrong

Lance Armstrong this week won an unprecedented 7th Tour de... Read More

Looking for a New Office Chair?

Perhaps you are building a new home office or you... Read More

Advertising - For Small Businesses (Part 2)

How to do itPeople skim through newspapers and magazines and... Read More

Franchise Territories for Mobile Businesses; Why Limitations

In franchising an individual desirous of their own business will... Read More

Mini-Blind Cleaning Business, Case Study

Sometimes the simple businesses are the ones, which make good... Read More

Why Small Business Must Turn to PR

If small business had no important outside audiences, it wouldn't... Read More

11 Benefits of Starting a House Cleaning Business

One of the biggest fears people have about starting a... Read More

Business Success - The 42 Greatest Business Tips

What does it take to grow a business and run... Read More