Business Financing

There have been many troubles in the American economy since the housing bubble burst. Now more than ever businesses are needing to obtain additional capital in order to keep their businesses functioning. Many businesses are rushing to find funding. There are many different types of business financing including investors, bank loans, SBA loans, invoice factoring and IPO’s. Each of these different types of funding provide their own unique set of pros and cons. We will analyze each of these business financing options and explore the good and bad sides of using them.

Investors – Venture Capitalists

There are several types of investors that one could look to if they were so inclined. The most common type of investor is the "angel" investor. These are individuals who look for companies that exhibit prospects of growth. These individuals are looking for an easy in which will allow them to make a profit so it must be noted that charity is not their milieu. For early stage companies with relatively no revenues an angel investor may be an appropriate route to obtain capital. However many angel investors are looking for a piece of the business and in some cases require the owner to relinquish control.

Bank Loans / Micro loans

There are basically two kinds of loans; short term and long term. A short loan, also known as an intermediate-term loan, usually runs less than three years and paid off in monthly installments. Many businesses will pay these loans from direct cash flow and in some cases make large balloon payments. Long term loans last longer than 3 years and can run anywhere from 3 to 30 years. Collateral from hard assets is generally required to get a loan of this type. Payments are also extenuated in this situation, payments being made quarterly rather than monthly.

SBA & Government Loans

The government provides small business incentives in the form of easily obtained loans. The Small Business Administration provides loans guaranteeing up to 80% of the loan principal. Any business that is capable of repaying the loan from their cash flow could possibly benefit from a SBA loan. The main advantage here is that individuals have looser re-payment plans which allow them to get their business going.

IPO’s

While this is generally not considered a type of "business financing" it can yield those kinds of results. An Initial Public Offering (IPO) or a Direct Public Offering (DPO) is the direct sale of a companies shares to individual investors. Once a company has gone public and begins to trade stock on the stock market they will see a huge influx of capital. While the shares may or may not be openly traded the value will still exist and open up new opportunities for the business.

Invoice Factoring

Invoice factoring is an alternative form of business funding that leverages your existing assets. Using your invoices or your owed debt you can obtain liquid capital in as little as 24 hours. First you sell your invoice debt to a financial capital. They will give you cash in the same amount of your debt minus their fees. The approval time for this type of loan is generally very short thanks to the fact your debt will likely be paid. Businesses of any size that are in need of quick working capital can benefit from invoice factoring.

Invoice Factoring
Invoice factoring