If you are getting started with or growing your business, you may possibly require funds. Think carefully about the kind of financing to take as it may impact your cash flow and tax obligations.
Considerations before taking out a loan:
- decide exactly how much funds you will require
- create a reasonable business plan
- look into the time schedule you will have to pay back the loan
- ascertain your capability to pay back the loan
Forms of Finance
There are two primary forms of finance which any business can take. A business is not limited to only one type of financing but can actually take advantage of the two forms of financing.
- Debt finance – funds obtained from alternative loan providers, like a bank.
- Equity finance – making an investment with your own asset or cash from any other stakeholders.
Where to get the funding you need?
The main options for debt financing are financial institutions such as banks and credit unions. Funding could be offered as a loan, an overdraft, and a line of credit.
- Retailers and suppliers are a good source of store credit. While some retailers can trust you by providing you a line of credit, retailers also route it through a finance company through store cards. Nonetheless, store cards have high-interest rates but there are retailers who offer a period of free interest which any business can take advantage of.
- Factor Companies or debtor finance is also a good avenue to look at. Factoring means selling its invoices or accounts receivables to third party finance or in this case a factoring company. This allows a business to get the cash they need without having to wait for the period of customer payments. Therefore, customer payments will directly be credited to the factoring company. The fee that comes with this service varies from company to company. It is then crucial to do some basic comparison in terms of fees before deciding on a factory company and getting into a contract.
- Invoice financing is generally similar to factoring. The difference is in the customer payments which is directly credited to the business instead of the company that provided financing. In this case, customers are not involved and are not aware of the arrangement between the business owner and the financer.
- Peer to peer lending is another source of funds that you can consider. This matches people in need of money to people who have money to invest. Funds loaned out will have to be paid in a specific time period along with interest rates. Note that interest rates will vary depending on the risk involved.
- Before looking for funding sources outside, it would be nice to look for funding sources within your circle of family and friends. If a family member or a friend decides to lend you the funds you need, make sure that everything is placed in writing to avoid possible conflicts in the future.
On a side note, if you are a business and facing litigation due to personal injury, you have access to pre-settlement loans. If you are facing a car accident lawsuit, you have access to car accident loans. This is a type of funding drawn against the expected amount you get from a pending case. This is also known as lawsuit loans, car accident loans, and litigation loans. While there are many terms referring to this type of loan, note that this loan is essentially not a loan but works more like a cash advance.