Selasa, 16 April 2013

Introduction to types of Small Business Finance

The best place to start looking for a small business loan is with SBA. They have all kinds of financial assistance and aid programs for small business owners. Assuming there is a need for funding from the commercial market place outside the purview of SBA, described herein are some basics about the options available for small business owners.

The most fundamental question that the entrepreneur must ponder is whether to opt for debt financing or equity financing. Each has its pros and cons and further subdivisions in terms of types of financing. Which is most suitable depends on factors such as the business type, age, cash flow and credit rating and history of the owner.

Debt financing can be a loan, bond, or line of credit from a bank or other lenders or even just an IOU. It is usually the best option if the business project is very specific and has a well-defined timeline. The borrower must put something as collateral as a form of protection.

The owner of credit rating and history will have a great impact on the ability to secure financing to small businesses. The company also has to have enough cash flow (cash flow) to honor the rebate program. It is important for the owner to do some business planning to work out a feasible repayment period based on the cash flow.

With equity financing, the owner offers the investor the properties in return for cash. Has some disadvantages such as loss of control, since the investor would want a part of the decision making. But unlike small business loans, equity investments do not need to be repaid with interest, so it makes it easier to run the task.

The equity option is feasible for large financing needs and on a long-term basis without deadlines and immediate for a ROI. It is to be noted that stock investors looking for higher yields, although it’s a relatively longer delay. The owner is not likely to regain full control in the short term and probably not even in the long term.

Equity investment can be in the form of individual investments made on a personal basis by the owner, friends, relatives, colleagues or angel investors. May be provided by a venture capital financing. Equity financing is more focused on the potential for success of the project and does not require the type of guarantees or guarantees for debt financing.

As mentioned above, the decision on debt vs. Equity will depend on the type of business, the current situation and the credibility of the owner. Too much debt is not good for business, and no one is losing control entirely equity investors. Must find the right balance, and that debt-equity ratio is different for different types of industries.

On a related note, it helps to have more options on how to use it to maximize the impact of funding on the business. For example, instead of buying equipment outright, it might be useful to consider equipment leasing. There are a lot more things that need to be considered, and it is best to consult a lawyer or a banker trust for more information about the options for the financing of small businesses.

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