How To Finance A Business

Financing Solutions To Help You Start Your Business

How To Finance A BusinessIf there is one constant in every industry, it’s that all new businesses need financing in one form or another.

Whether it is borrowing money from friends and relatives, taking out a loan, or using commercial financing, a business needs funding in order to keep operating and making sales until it reaches a point where the revenue starts to exceed the expenses.

There are numerous methods and tip for financing a business, and we will cover most of the major ones.

Never Ask For More Than You Need

When financing business operations, entrepreneurs should never request more money than their operation needs. Most financing for businesses is in the form of a loan, and asking for more than is needed means taking on unnecessary debt, which will ultimately translate to less revenue in the long run. Banks and other lending institutions do not let business owners return the unused portion of any business financing loan, and the increased amount of debt can negatively impact a company’s credit rating.

Taking out bank loans is the traditional method to finance a business. However, banks are employing more and more conservative lending practices, making it tougher for new businesses to get the financing they need through bank loans. Banks require that business owners furnish a financial operating history for their businesses when applying for loans, which makes this method of business financing nearly impossible for emerging entrepreneurs. In fact, less than 40% of all business loan applications are approved by banks – and that includes established companies.
Many startups use credit cards to finance a business. This is a very risky method for business financing, as it places personal finances on the line, and being unable to make a payment in a given month can trigger very high interest and penalty fees. Most financial experts advise entrepreneurs to apply for business credit cards as soon as possible, as they typically have higher spending limits and relatively lower interest rates, and use those for short-term business financing, instead.
Crowdfunding is a great way to not only get financing for a business, but also to measure the public’s desire for a company’s products or services. With most crowdfunding campaigns, entrepreneurs present their vision and offer rewards in return for investment money. If the business achieves its financing goal, then it has to make good on any promises and rewards for the various amounts or “investment levels” people donated. On the other side of things, if the final goal is not met, then all funding is returned to the investors, and the business is left seeking alternative business financing methods. Crowdfunding is a big risk, but if a campaign is run in conjunction with other funding methods, it can be a great way to do research to get feedback from your target audience.
The Small Business Administration (SBA) specializes in offering advice and financing for businesses. With a variety of loan programs, the SBA has numerous resources on how to finance business operations. SBA loans require that business owners have very detailed business plans – complete with financial projections, budgets, forecasts, market demographics, comparable businesses in the industry, and everything else. The SBA wants to know that business owners have thought out their ventures before they consider approving them for business financing. Keep in mind that every SBA loan has its own requirements, and all terms must be adhered to strictly, otherwise it might incur hefty penalties on any business financing loans.
For businesses that do not have the established credit or financial history, the SBA, as well as many other commercial lenders, offer micro loans. Micro loans are a form of finance for business operations that need money ranging from a few hundred dollars to a few thousand (under $40K). Micro loans are ideal for financing business operations that are run out of a home office or kiosk. The rates and terms for micro loans are typically more flexible than traditional bank financing for business organizations, and they require less documentation for approval.
A very popular method for financing business operations is to use asset based financing. Asset based financing is not dependent on credit rating or financial history, but rather assets like equipment, property, and receivables. Most lenders will give asset based funding as a percentage of the overall value of the assets a business has. This is a very attractive option for new and emerging business owners who need extra working capital in those crucial months after launching.
Much like asset based lending, factoring is a way to finance a business that does not hinge upon the company’s credit rating for financial history. Factoring is based on unpaid customer invoices. In most businesses that do not use a point of sale, customer invoices are generated with an aging period ranging from 30-90 days before any payments need to be made. With factoring, business owners sell their unpaid customer invoices at a discounted rate for immediate cash. Since cash flow is crucial to a new business, waiting for payments from customers can cause a financial strain that can bring operations to a halt. Factoring removes the waiting period and provides the financing a business needs to not only maintain operations, but to grow.

Become A Commercial Finance Broker

The commercial financing industry specializes in getting business owners the financing they need, especially when banks deny applications, and the businesses are too new to have an established financial history.

The Commercial Capital Training Group (CCTG) gives graduates the tools they need to start their own commercial finance businesses so that they can bring entrepreneurs and lenders together to work out financing agreements, and take home sizable profits in the process. Instead of seeking financing for business operations, CCTG provides the training and support so people can achieve financial independence by facilitating financing for business owners who need working capital to launch or grow their operations.

If you like the idea of owning your own business, setting your own hours, and unlimited revenue opportunities – simply by bringing entrepreneurs and lenders together to work out an agreement and by showing people how to finance business operations, then reach out and see how The Commercial Capital Training Group is the right choice for you.

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