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Small Business Financing

An established business owner has many options when it comes to locating financing for their small business. Here is a brief list of some of the small business financing options readily available on the internet.

Secured Business Loans

Secured Business Loans require collateral such as real estate, business equipment, and/or accounts receivables.

Unsecured Business Loans

Unsecured Business Loans require no collateral. These types of loans are for borrowers with good to excellent credit. Approval for this type of loan is based on the credit history of the business owners.

Business Lines of Credit

A Business Line of Credit is a revolving account that can be used to access working capital up to a specific credit limit. Business credit cards are a form of business line of credit.

Small Business Startup Loans

Business Startup Loans are used by small business owners to develop an idea, buy an existing business or franchise, or bring your particular product(s)/service(s) to the marketplace. A business startup loan can be in the form of a secured loan, unsecured business loan, or business line of credit.

Working Capital Business Loans

Working capital business loans are for already existing businesses. Working capital can be used to buy equipment, inventory, or advertising, meet payroll, cover minor repairs and maintenance, or any other business need.

SBA Loans

The Small Business Administration (SBA) was created by U.S. Congress in 1953 to aid and assist the development of small businesses. SBA administers three separate, but equally important loan programs. SBA sets the guidelines for the loans while SBA's partners (Lenders, Community Development Organizations, and Microlending Institutions) make the loans to small businesses.

Merchant Cash Advance

Merchant Cash Advance providers work in conjunction with merchant account providers. Retail businesses that accept Visa & Mastercard as a form of payment can sell a portion of their future credit card sales for a lump sum of immediate cash. The business owner receives a lump sum of cash from the cash advance provider. The merchant account provider will then deduct a small percentage of each future credit card transaction until the advance is made whole.

Invoice Factoring

Invoice Factoring is the process in which a business converts unpaid invoices or accounts receivable into immediate cash by selling them to a third party finance company known as a Factor. Instead of waiting 30, 60, or 90 days for your customers to pay, you send a copy of the invoices to the factoring company. The factoring company will then advance your business up to 95% of the face amount of the invoices. Then factoring company takes the responsibility for collecting payment from your customers.

Commercial Mortgage Loans

Commercial Mortgage loans are used to buy, renovate, or refinance commercial buildings.

Equipment Leasing

When a small business owner needs machinery, heavy equipment, or motor vehicles to operate their business, equipment leasing or equipment financing companies offer an alternative to paying cash. In most cases you can lease or finance new or used equipment. If you own your business equipment, you can sell it to an equipment leasing company and lease it back to improve your cash flow.

Financing Your Small Business

While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second. Whether you're starting a business or expanding one, sufficient ready capital is essential. But it is not enough to simply have sufficient financing; knowledge and planning are required to manage it well. These qualities ensure that entrepreneurs avoid common mistakes like securing the wrong type of financing, miscalculating the amount required, or underestimating the cost of borrowing money.

The Small Business Administration (SBA) is Congressionally mandated to assist the nation’s small businesses in meeting their financing needs. The agency’s small business loan programs enhance the ability of lenders to provide long- and short-term business loans to small businesses that might not qualify through normal business loan channels.

Not All Money Is the Same

There are two types of financing: debt and equity financing. When looking for money, you must consider your company's debt-to-equity ratio - the relation between dollars you've borrowed and dollars you've invested in your business. The more money owners have invested in their business, the easier it is to attract financing.

Debt Financing 

There are many sources for debt financing: banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. State and local governments have developed many programs in recent years to encourage the growth of small businesses in recognition of their positive effects on the economy. Family members, friends, and former associates are all potential sources, especially when capital requirements are smaller.

Traditionally, banks have been the major source of small business funding. Their principal role has been as a short-term lender offering demand loans, seasonal lines of credit, and single-purpose loans for machinery and equipment. Banks generally have been reluctant to offer long-term loans to small firms. The SBA guaranteed lending program encourages banks and non-bank lenders to make long-term loans to small firms by reducing their risk and leveraging the funds they have available. The SBA's programs have been an integral part of the success stories of thousands of firms nationally.

In addition to equity considerations, lenders commonly require the borrower's personal guarantees in case of default. This ensures that the borrower has a sufficient personal interest at stake to give paramount attention to the business. For most borrowers this is a burden, but also a necessity.