7 Ways to Get Small Business Financing

Money is always an issue for small businesses, especially when starting out. However, the need for cash injections can continue long after you get that first dollar. Even same industry businesses can differ greatly, but they all have in common the need for money as well as the places they can go to get it. Here is a look at seven opportunities to get cash for your small business.

Small Business Loan

Probably the most known source for small business cash is the small business loan. This most often comes from a bank or the SBA; for startup capital or an expansion. The lender looking at your proposal needs to feel that you are a good investment and you can help them decide in your favor. Wherever you go to get the loan, there are several things you will need in order to give your business its best chance to get that loan.

Your business plan will tell the lender about your business and you. They will see how much planning you have done, your grasp of the industry, and how effective the loan will be.

A good cash flow projection tells the lender not only how you will pay them back, but when. Your best bet is to show hard, but honest numbers.

Your personal financial statement helps the lender to understand where you are coming from and where exactly your business is at. After all, you’re tied to your business at the hip.

Bring past business tax returns if you have them. It will show the lender how your business has done and how you have managed money in the past.

Your credit rating is key for establishing trust. The lender may be giving money to your business, but they are forming a pact with you. A credit report will fill in the rest of the details of who they are about to trust with their money.

Microloans

From the SBA, the microloan program may be a perfect fit for your current financial needs. With a maximum of $35,000, a microloan can be less daunting to acquire, if not a little easier than a small business loan. The most common use for a microloan is short-term working capital and equipment purchases. Since most microloans require collateral of some kind, the best use is probably equipment, since the equipment can then be the collateral.

Supplier Credit

While this source of income may not work with all businesses, it is ideal for manufacturers and retailers. A supplier makes money by you buying their products, but if you can’t first buy their products to make yours, they lose a sale. If you cannot be billed – net 30 days – or if it may take longer to receive your money, it is possible to work out a deal with your suppliers. An ideal situation is to procure credit out to sixty days. If that isn’t possible, maybe they will take a percentage of the sales of the end product on top of the cost of the supplies. This temporary solution could generate higher interest than a loan, but in some situations, it could be your only choice.

Angel Investors

Best in times of growth, angel investors can be a boon to help a small business get over the hump to where they need to be. Angel investor loans fill the space left after you’ve gotten your small business loan and other capital. Unfortunately, they are few and far between and spending too much time looking for them can be even more detrimental to your business than cash problems. The best time to look for an angel investor is when you already have growth, you’re approaching the breakeven point, or you’re expanding. The worst time is when you’re hemorrhaging money. Take care, you still have your business to run. Plan to spend four to six months looking for an angel investor, but use only a quarter of your time. Like getting a small business loan, be ready with all that proof that you are worthy of an angel’s blessing.

Credit Cards

It’s a source of quick, red-tape free cash, but credit card cash advances can eventually kill your business if you’re not careful. Always keep in mind the high interest charges when you are looking at credit cards as a cash source. Use them, but only for quick-turnaround, time-sensitive, and/or small scale solutions. Treat credit card advances like you would a fire; it’s great for quick warm ups, but really hurts if you leave your hand in there too long.

Home Equity Loans

Like credit card advances, a home equity loan for your business is a personal risk solution. They are more attractive however, because of their lower interest rates. The catch is that if things go south, you lose your home. Depending on how personally invested you are in your business, this may not be such a different outcome from credit card advances, or even small business loans if calamity strikes. The main thing to remember when considering the bad side of a home equity loan is that due to consumer protection laws, it’s a much longer process to seize your house than it is from a normal bank loan.

Family or Friends

Nothing ruins a friendship or splits a family faster than money problems. When you are considering approaching the people you are closest to, you must know the best way to handle the situation, as well as the potential pitfalls. Some common relationship killers due to business loans is the recipient squanders the money, doesn’t use the money as indicated, doesn’t pay the money back, or doesn’t pay it back in a timely or agreed upon manner. If you can avoid those situations, you’re way ahead of the game. The best course for loans with friends and family is to handle it as professionally as a bank loan, or even more so. Make sure there is a formal agreement with signed paperwork stipulating how much is to be loaned, collateral, interest rate, how it is to be repaid, and what happens if it cannot be repaid. If you spell out everything on paper, there is no room for disaster due to misunderstandings. Remember always: these people trust and believe in you… don’t make them regret it!

What Are the Biggest Problems Small Businesses Are Dealing With?

The study from the National Federation of the Independent Business Research Foundation, sponsored by Wells Fargo, recently researched the issues that small business owners consider to be the most problematic in their work. No wonder, on the top is the problem with health insurance, but liability insurance as well. In second place are the business costs and difficulties with small business financing, with emphasis on the tax cluster and worker’s compensation.

Difficulties such as incompetent employees, problems with customers and suppliers and inability to organize their time between job and family are also regarded as important, but with much lower ranks, according to this survey. Even though most of the small business owners don’t have time nor interest to deal with some political issues, many of them believe that politics does have an impact on their business and can be a source of their problems.

Many small businesses’ worries are connected with the cost cluster, among them, the most difficult to control are health insurance costs, energy costs and inflation. Other cost problems are connected with the costs of fuels and electricity, supplies, inventories and worker’s compensation insurance. An American economy used to provide a good, stable foundation for small business owners, but lately it had a negative turn, resulting with small businesses struggling to search for innovative ways to reduce expenses and increase sales.

Speaking of problems with taxes, we are talking about federal taxes on business income, property tax (real, inventory or personal property), tax complexity or state taxes on business income. Obviously, most of the high ranked problems small business owners deal with are connected, this way or another, with some general issues or a state. The only way to deal with those difficulties is to be well informed and to have a good strategy. Never underestimate the importance of a good small business plan.

Still, there are some concerns more locally oriented, which are connected with the organization within the company itself. There are, of course financial problems, which could be solved by careful and professional managing and a special emergency bank account with some money saved on regular basis but used only in tough months.

The survey also showed that some of the everyday headaches a small business owners may have, come from their near surrounding. For example, incompetent employees which can give company a very bad look. In comparison to large companies, small businesses have a high employee turnover, and reliable and trustworthy employees are a great challenge.

Maybe the most serious problem of this kind is a relation with suppliers. Most of the businesses are sort of net or chain of services and goods, and a flue of the money, so one business works as good as is the functioning of business deal with suppliers or other company you cooperate with.

Invoice Factoring and Accounts Receivable Financing for Small Business

Small Businesses are still suffering from a lack of available capital for expansion, purchase of new equipment and for just making payroll until a client pays.

First a little background. Factoring, or the act of selling invoices at a discount, is a financial product that has been available since the birth of merchant and customers. There are many factors in the world and many focus on specific industries or even segments within industries. Like Temporary Staffing, Trucking, Software Developers, Coders, Oil and Gas services and more.

Accounts Receivable financing, another name for Factoring, requires a small business owner to sell an invoice for an advance against that invoice. The factor will typically provide an advance of between 70-95% of the face value of the invoice depending on a few things. First, the strength of the Account Debtor or the person that owes the small business money, for a service or product. The Account Debtor is typically another business.

The process for starting to factor is much like obtaining a commercial bank loan or home loan, expect that Factors will work with clients who aren’t bankable or able to secure financing from a traditional community bank, credit union, or national bank. A basic application is completed and information is provided for the underwriting of the invoice and client. These documents will usually include the businesses financials, information on the account debtor, a background check, and documents related to the invoice, contracts, purchase order and more.

Once all the documents are gathered the factor will complete its due diligence and underwrite and quote factoring the invoice. The underwriter will also recommend a term for factoring, since you will be putting your future invoices up for security in the event the invoice doesn’t pay, or some other calamity prevents the payment of the factored invoice.

Factoring can be expensive, and it can also be very reasonable. When comparing the cost of financing, merchant advance loans, credit cards, and other typical small business financing, factoring may actually be a bit cheaper. Again the cost to factor is based on the risk and likelihood the invoice will pay the factor. The cost is also determined by the credit, collateral, character of the small business requesting the factoring.

The easiest way to look at factoring is figuring its cost on a monthly basis. It’s not uncommon for a factor to offer very attractive rates or at least advertise them online .35% to5.55% but the reality is those are 10 day rates or something near that. A typical factor will charge between 1.5% for the highest quality factor to over 5% for risky invoices that have a higher risk profile.