Archive for

The Steps To Business Financing

The first step in finding small business financing is knowing what kind of financing you need. IS the small business financing you’re looking for debt financing (money you borrow to run your business) or equity financing (money acquired from investors and/or savings)?

When it comes to debt financing, most US small businesses turn to our traditional financial institutions, such as unsecured loan services, to find small business financing.

Some take out short-term business loans, which need to be repaid (with interest) within a set period such as 180 days. These are sometimes called demand loans, because they can be called in by the lender (the bank) at any time.

Longer term business loans are also frequently used as small business financing. Term loans are usually used to finance particular assets, such as building renovations or capital equipment.

Other businesses depend on unsecured loans and/or lines of credit for their financing. Through agreement with the financial institution, your business has a set amount of credit that you can draw upon. While a line of credit gives you the flexibility to pay day-to-day expenses or meet cash flow crises, whatever amount of money you use has to be paid back, and you pay interest on the outstanding balance.

Many financial institutions now offer unsecured credit cards especially designed for small businesses – and credit cards are a popular way for small businesses to finance startup and operating expenses.

However, credit cards are some of the most expensive financing available, in terms of their interest rates. They’re best used as a convenience for day to day expenses, if you pay off the balance in its entirety each month.

Traditional sources of small business financing are not available to all small businesses. Start up businesses may have an especially difficult time meeting bank requirements for debt financing.

Unsecured Loans will provide the hook for you!

An Introduction to Revenue Based Financing for Small Business Owners

In the new economy it can be very difficult or impossible for a small business owner or entrepreneur to find capital to support the development of new ideas. Historically, small businesses and entrepreneurs have sought capital through “Angel’ investors and lending institutions and these options are increasingly unavailable to even well established businesses. The revenue-based finance model, sometimes called the royalty-based finance model (RBF), is a financing plan that was introduced over 50 years ago and is gaining popularity today. The RBF model provides unique benefits to both the small business and the investor.

The RBF model is a non-dilutive system in that the small business owner does not lose any ownership in the company, this factor tends to be the most important and desirable feature of the RBF funding system to small business owners. Additionally, the investors payout is capped to a specific amount that is paid out of the revenue the company earns within a specified time period. Business owners benefit by receiving investment dollars to build their business without losing ownership and investors benefit by receiving payouts as soon as revenue is made by the business. The investor has purchased the rights to the revenue earned by the small business, but they have not purchased any other ownership of the business. The terms of the RBF model are typically negotiated to allow some time for revenue to accrue before payouts need to be made, and typically there is a time period limitation and a payout limitation that is included in the negotiated terms.

This model is now used by many investment companies across the nation including even local and state government agencies. Notably, not all small businesses or investors will benefit by using this model. Investors who agree to RBF terms need to accept the ‘capped’ earning potential of the investment. Businesses with low profit margins and limited flexibility on pricing should careful negotiate the terms of any RBF financing plan to make sure their revenue stream can support a regular deduction and payout to investors.

The RBF model can give a revenue stream for any business and may offer a mechanism for funding both well established business institutions and upstarts, equally.

How to Apply For – And Get – Small Business Financing

If you start a small business, there’s going to come a time when you need extra money. Maybe you’ll need it to get your business up and running, or you might need it to expand and grow, but you know you’ll have to take out a small business loan in order to make your plans happen. As you are probably already aware, some people who take out small business loans are successful in getting them, and others get rejected time and again. So how do you go about presenting yourself and your plans in order to get lenders interested in financing your project?

The main difference between those who succeed and those who fail is planning. The more prepared you are when you present your ideas to a lender, the more likely you’re going to receive the funds you need. Think about how differently these two scenarios will end up:

John barges into a bank demanding to talk to a loan officer. His jeans and t-shirt are disheveled, and he has a 2-day beard. The loan officer is cordial, even when John throws in a bit of colorful language now and then. When he’s asked about his business plans, he very vaguely describes an idea he had. He has no cost estimates and no conception of how the money he’s asking for will be spent. He’s equally vague when the officer asks him about his personal finances. When the lender does a credit check on him following the meeting, he finds that John took bankruptcy within the last year and has a history of unpaid bills.

Joe, on the other hand, calls ahead to make an appointment with a banker. He arrives a little early wearing a neat suit and tie and speaks politely to the receptionist. He’s brought a concise, well-thought-out business plan with him as well as a break-down of where the money he’s borrowing will be spent. In addition, he’s able to provide the loan officer with a personal financial history that shows an excellent track record of paying his bills in a timely manner and a great credit rating score.

In reading through the above scenarios, it probably seems ridiculous to you that anyone would approach borrowing money the way John did, but you might be surprised. Bank loan officers have seen and heard it all. So think about it. When you go in to present your business ideas to the banker and ask for funding, are you going to act like John or like Joe?