What are the alternatives in financing a business?
Committing your own funds is often the first financing step. It is the best indicator of how serious you are about your business. Trade credit, selling stock and equipment leasing offer alternatives to borrowing. Leasing, for example, can be an advantage because it does not tie up your cash. Your credit union is an obvious source of funds.
Committing your own funds is often the first financing step. It is certainly the best indicator of how serious you are about your business. Risking your own money gives confidence for others to invest in your business. You may want to consider a partner for additional financing. Banks are an obvious source of funds. Other loan sources include commercial finance companies, venture capital firms, local development companies and life insurance companies. Trade credit, selling stock and equipment leasing offer alternatives to borrowing. Leasing, for example, can be an advantage because it does not tie up your cash. Ask your local SBA office for information about these various sources.
Financing considerations for your business would be defined more precisely in your business plan, but generally would consist of a combination of owners’ equity and bank or commercial lending sources. The alternatives to be considered would also depend largely on the type of business; capital intensive (real estate, inventory, and equipment needs) or service oriented. Capital intensive businesses would normally seek asset based lending or leasing sources. It is important to establish a good working relationship with a bank that will work with you not only in startup phase by providing short term financing needs but in the longer term by providing for or participating in longer term asset based or mortgage lending needs. Leasing real estate (office and warehouse needs) and equipment should be evaluated as an alternative to or in combination with financing your business, especially in startup phase. The SBA at www.sba.gov has various financing programs available that can be structured di
