There’s a lot of options for financing growth of your new business. Here are 4 types of business loans that are available to you.
You have a business that is in operation. You’ve been operating for at least 6 months, if not longer, the longer the better of course.
There’s a lot of options for financing growth. There are investments, which come from venture capitalists, angel investors, or private equity. Those are all equity investments. Those are people who are going to own a piece of your company, want some voting rights, want some say. If you just want debt, you just want a loan. You are a relatively small growing business, lets say a global small business, or a medium sized business. There are a few big categorize of loan products or loan related products. I’ll explain what that means.
1. Equipment loans or other asset based loans. This is where you have collateral, you have assets. There is not that much concern with how much business you do or what your personal business credits like. It may matter a little bit, but the primary reason for the loan is the collateral, the assets.
2. Unsecured Working Capital Loans. The word unsecured tells you, there aren’t any assets in play. There, your personal business credit will matter more. There what’s really going to matter is how much business your company does. Can it support the loan and pay back the loan?
3. Small Business Administration Loans. They may or may not be collateralized. The government actually promises to a bank to pay some of the loss if the loan goes bad. So you still get that loan through a bank. Rates are super good. Not everyone qualifies for those. There’s a lot of difficult qualifiers and they take a long time to get, but they are pretty good loans from a cost stand point.
4. (Loan related, NOT a loan) Factoring. In factoring, you are selling invoices for immediate cash. You are selling an asset. When that invoice is paid, it is paid to the factoring company and they send you the residual. People think of it like a loan and try to price it like a loan and through it in with a loan, because it’s not an equity investment, but its obviously not a loan.
So you’ve got equity and debt. Sometimes assets matter, sometimes credit matters, sometimes income matters. You have to talk to a good company who knows this stuff to figure out the best option for you.
For my advice about startup success, check out www.thestartupshepherd.com.
Brett A. Cenkus is The Startup Shepherd™. He has 20+ years of experience in business finance, business law and entrepreneurship. Brett believes that numbers and logic are awesome tools, but understanding human nature and emotions is the first step to business success.
The Cenkus Law Firm provides services related to mergers & acquisitions, general business issues and startups, including founders’ agreements and fundraising. Brett also consults with entrepreneurs and invests his own capital as an angel investor.
From 2010-2013 he served as Chief Legal Counsel of a publicly-trade international oilfield services company. From 2001 to 2006 he and a partner founded and built Paragon Residential Mortgage. Paragon was sold to Bridge Investments in 2006.
Brett holds a Juris Doctorate from Harvard Law School and a Bachelor of Arts degree in Economics from Messiah College in Grantham, Pennsylvania.
Brett lives in Austin with his wife, Cathryn, and daughter, Elle. He enjoys reading, running, classic movies, great food and wine and NFL football.
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