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The concept that options readily available for small business owners come down to choices between traditional financing, invoice factoring companies , or venture capital is the wrong way to look at funding medium-sized business efforts. Even if the business depends entirely on debt financing to sustain its capital requirements, business owners should look at the financing options available to them as a 'portfolio' of investment choices.

One size does not fit all-- two or three sizes don't fit all either.




Many of the Main Street businesses we refer to here will fuel growth and fund working capital with borrowed money or cash flow. Thankfully, there are a ton of possibilities available. Regrettably, many small business owners consider the choices as an either/or choice to be made. I think it makes sense to consider financing alternatives that are appropriate to different scenarios and how they might work together to help small business owners discover the capital they need.

For example, a good relationship with a community banker is crucial to the long-term health of a small business. That's not to say an SBA loan or some other traditional loan is the most ideal and only solution to the financing demands of the local dry cleaner or restaurant. Yes, interest rates are lower on a traditional fixed-term loan, but how fast a small business owner can access capital might be problematic with a term loan that takes weeks or months to fund if the small business owner needs to have the cash right away.

And, the big hurdle is that many Main Street business owners don't have the credit, time in business, or revenues to satisfy traditional loan criteria. This is especially agonizing for early or idea-phase startups. No history, no product, and no revenues normally mean no loan.

For a business owner who doesn't match the underwriting qualifications of a traditional lender, factoring company products can really help establish credit while allowing the borrower to fill his or her short-term capital needs. Factoring companies have less stringent lending guidelines than does the local bank-- but that comes with higher interest rates. Because of a lot higher interest rates, small business owners should check out repayment terms of a few months as opposed to a couple of years. Although alternative financing might be a highly effective tool when used properly, it can also be very costly if misused.

Many small business owners who do qualify for low-interest term loans still go to factoring company methods as a short-term bridge to a traditional term loan while they await a traditional loan to be funded. If the business owner is seeking to take advantage of an opportunity and can't an SBA or other traditional loan to close, the added interest they pay over the two or three months they wait is well worth almost immediate accessibility to capital offered by invoice factoring .




When looking into the numerous funding alternatives offered for small business owners, a few of the questions that should be asked include:.
1. What is the range of terms readily available?
2. Are there any upfront costs?
3. What is the minimum credit score needed to obtain the loan?
4. Precisely what are the underwriting guidelines in addition to my credit score?
5. How fast can the loan be funded?
6. Do I need to have the cash now, or can I sit tight?
7. Will I have the ability to make regular and timely payments?
A small business owner should treat his or her credit score like a valuable asset. In some cases short-term financial selections have long-term outcomes. As an example; a business owner that had a good business concept but no collateral, no income, and no credit was annoyed and disturbed that lenders weren't interested in his idea and weren't gushing themselves to offer him money. He wasn't interested in bootstrapping because it would cause him to scale back his growth plans. It wasn't what he wished to hear, but bootstrapping his idea was the only real option available and the approach I suggested. Many exceptionally successful companies were launched by an entrepreneur who bootstrapped his way to the top.

Exactly what's the most effective approach for your Main Street business? There are certainly a lot more than one and even a blend of many selections-- once size does not fit all.