Archive for the ‘Finance’ Category

SmallBiz Funding, Part 4: The Line of Credit

Wednesday, December 9th, 2009


We’ve been going through options for small business funding for a few posts now — from the old do-it-yourself funding method to a variety of loans you might want to consider. But what if it’s less about startup capital and more about month-to-month liquidity? What if you need access to “just in case” money — a cash-flow cushion, if you will? That’s when it’s time to look into a bank-backed line of credit.

What is a line of credit?
A line of credit is a lot like the “overdraft protection” you might have on your personal checking account. A pre-determined sum of money sits, at the ready, awaiting your business needs. If it goes untouched, nothing happens — it’s only when you actually tap this reserve that you’ll need to pay interest to the bank — just like a credit card. When you do use money from the account, you’ll need to pay it back with interest beginning the next month — just like a credit card. So wait — why not just use a credit card?

How is a line of credit different from a credit card?
It’s a matter of decimal points — lots of money. Depending on your personal credit history, business credit history and other factors, a line of credit can be secured for tens, even hundreds of thousands of dollars or more. Major corporations operate on lines of credit to secure their payroll and day-to-day expenses.

Where’s the catch?
As with any funding source, there are a few “hoops” to jump through. To obtain a line of credit, you’ll have to put your own neck on the line — guaranteeing payments personally, and suffering the consequences for late payments through your own personal credit. Certainly, it’s no free ride. But if you’re reasonably confident in the continued success of your business and your ability to keep an eye on your cash-flow, a line of credit might be the next step in helping your small biz blossom.

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Small Business Funding, Part 3: Three Startup Loans and How to Get Them

Wednesday, November 25th, 2009

In our last couple posts, we’ve discussed considerations for funding your own venture and for reaching out to “family, friends and fools” to get your startup off the ground. Great options for some, but what if you don’t have a trust fund or a rich uncle? The bank is a logical next step, but not all loans are created equally. This time we’ll take a look at three standard options for bank loans and what you’ll need to secure them.

Microloans
+ What it Gives You: This is just what it sounds like: a small sum of cash provided by a public or private lending institution. This amount could range anywhere between $5,000 — $50,000, and can cover any business need you might have.
+ What it Takes: Though less stringent than many other types of loans, requirements will likely include a high credit rating and a specific amount of tangible assets available for collateral.

Small Business Administration Loans
+ What it Gives You: An SBA Loan (7a, 504, etc.) is arranged through the Federal government, and *guarantees* some degree of funding to any small business through a traditional lending institution — often at very good interest rates.
+ What it Takes: Above all, time! Since these loans are guaranteed, you won’t be turned away — but you might be turned off by the wait. Depending on your situation, the lengthy application process may take longer than you (or your business) can stand.

Equipment Loans
+ What it Gives You: When the money you borrow is going directly toward something that can be “collateralized,” your loan is seen as less risky to the bank, so they can afford to offer you more. Equipment loans can range in the Millions of dollars in some cases.
+ What it Takes: Collateral is an obvious priority here, but due to the large sums of money changing hands, that’s not all. Requirements typically include excellent credit, capital for a down-payment, a solid business plan and a proven track record.

Making Your Decision
The most important thing to consider in your search for a bank-backed loan is that the bank is in the business of avoiding risk. The more evidence you can present to make your business a safe “bet,” the easier it will be for the bank to approve your loan. So the question is this: what sort of evidence you can produce — and how much?

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SmallBiz Funding, Part 1: Invest in Yourself

Friday, November 13th, 2009

When you first consider starting a business, it’s easy to get carried away with the “what if” that comes with outside funding.

“What if our first office was large enough to impress large clients?”
“What if we could start by hiring all of the top industry professionals?”
“What if we didn’t have to risk our livelihood?”

These aren’t just dreams. They’re valid considerations; definite possibilities. A sizable investment in your company’s foundation could give you a great head start. And depending on your area of expertise, it might be absolutely necessary.

But “what if” you can do it yourself?

It’s not without it’s own dangers, but if you have the necessary amount of personal savings to fund your startup, writing a loan to your own new business venture just might be the way to go. Here’s a few reasons why:

Urgency
When you’re spending your own money, the ticking clock is loud and clear. You touch and feel every dollar as it leaves your hands. It’s not for the faint of heart, but the sense of urgency this instills in your daily business can provide priceless motivation. It’s not just your new business on the line, it’s your immediate financial future.

Speed
The time it takes you to launch your business could be the difference between success and failure. All too often, a small business with all the right ideas and resources meets its demise due to its reliance on pursuing startup capital. When you hold the purse-strings, the only thing you’ve got to wait for is confidence.

Simplicity
There’s nothing more cut-and-dry than relying on yourself. The legal process is significantly less complicated. Your risk is self-contained. And the best part — when you succeed, you keep it all for yourself.

So how do you know if you’re prepared to finance your small business yourself? In the end only you can decide, but an experienced small business professional will help you get started by assessing factors like your initial overhead and the profit potential of your business. Though the process is much easier than arranging outside funding, it’s still important to work with a small business attorney to assure your arrangement is set up to protect you and your business as you move forward.

Now what if you made an investment in yourself today?

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