How to Finance a Small Business Quickly

There are many ways to finance a small business quickly. Depending on individual circumstances funding ranging from grants, personal loans, bank loans and venture capital can be obtained. You need to get prepared when shopping for funding because without a very elaborate plan, getting funding can be an uphill task.

Bank loans are suitable for those who have already established their businesses and are already running. Commercial banks can request that you supply them with your operating accounts for some months or even years to enable them evaluate the profitability of your business hence make decision to lend you or not. However, you will have to write a business loan proposal that outlines your need for funding together with the current and projected future information on cash inflows.

Microfinance institutions also offer business loans for individuals and groups. While their application requirements are not very strict, you must demonstrate real need for financing a sustainable and profitable business venture. However, they prefer to lend to groups since each member of the group guarantees another hence reducing the lending risk. Some microfinance institutions target a specific segment of clientele hence you will need to gather information if you qualify to get financing from these institutions.

Venture capital is also an easy way to finance a small business. The proprietor of the business parts with a certain agreed equity of the business and in return the allotees of the equity finances the business to the agreed amount, then the profit of the business is shared between the financier and the proprietor.

Some governmental and non governmental organizations can offer grants to enable people finance their small businesses. The amount is limited but can be of a great help especially when there is a need to put the business running. This way of financing is really good since it cannot be repaid back, unlike loan which requires you to pay back together with interest.However,you will be required to account for the use of the cash advanced to you to ascertain whether you used for the right purpose or not.

Personal savings can be of great help in funding a small business. Bearing in mind that the amount invested will not be paid back and remain part of the business capital, much relief also exist because payment of interest on such capital is at the discretion of the proprietor.

Loans from friends and relatives can also be a quick way of financing a small business. Since this does not require many formalities, an individual can just request for cash from his or her friends and relatives. This can be granted within the shortest time possible.

If the business is trading, you can request for trade credit from your supplies. This is an arrangement that can enable you obtain stock on credit and sell then repay your suppliers at a later date. This is a very convenient way of small business financing and in addition to using the credit facility; you can also enjoy cash and quantity discounts.

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!

Can Small Business Finance Risks Be Measured?

Managing business finance risks is a top priority for some small business owners, but there are a number of reasons why this activity is not even considered by a large number of small businesses. Some of the possible explanations are noted below, but business risk is an unavoidable and critical issue regardless of the rationale for not actively taking steps to curtail it. The fact that many of these risk problems could be totally avoided with a nominal amount of effort in most cases only adds to the potential mystery of why there is not more risk control at the small business level. Here are three possibilities to explain what might be going on when many small businesses largely ignore risk management:

  1. A trusted advisor, banker or manager suggests that it is not necessary to be concerned.
  2. There is a lack of understanding as to why it might be important to analyze financial risks for commercial financing.
  3. Time management issues have led to a conclusion that there is not enough time to worry or do anything about this.

In addition to these three reasons, each company can have numerous unique factors that contribute to risk measurement being assigned a low priority. Two explanations that have been heard more often since the recent banking crisis are a variation of the following questions:

  • If the big banks cannot manage financial risks, what hope is there for small businesses to get these complicated problems under control?
  • If my banker is not able or willing to help with managing the business financing risks, who can help if there is not a qualified individual in my company to do this?

Because of questions and realistic concerns like this, it is not surprising that the issue ends up on the back burner. But that does not mean it is the best solution for handling the problem. Business finance risk management often requires personal involvement before a small business owner understands what the issues and problems are. This is not unlike many situations in which active participation leads to better comprehension of the subject matter. It seems to be true whether we are talking about learning a foreign language or getting a better grasp of how to reduce business risks. Here is an anonymous quote that helps to reinforce this observation:

  • “I hear and I forget. I see and I remember. I do and I understand.”

As a final note regarding the question asked in the title of this article, commercial borrowers and business managers are likely to have more success in assessing business finance risks if they assume a personal and active role in risk management.