At one time or another, many of us have dreamed of starting our own business. Who wouldn’t want to work for themselves? I love working for myself. I can sit here on my couch, in my pajamas, watch the Young & The Restless, and crank out a few freelance articles to make some fat cash before noon every day. Of course, I did pick up an annoying co-worker – my dog Pablo – but that is beside the point. I have the freedom to work when I want, go where I want to go, and I don’t have to answer to anybody except myself. Still, if I don’t do the work, I don’t get paid…so there is that.
Luckily, the business that I started is something that almost anybody can do for almost free. That is one of the beauties of working online: the start-up costs are practically zilch. However, most people who want to start a business aren’t so lucky. With so many commercial finance options out there, what is the best course of action for small businesses trying to improve their capital situation? Here are a few different commercial financing options for “would-be” entrepreneurs and seasoned small business owners alike.
Yeah, we aren’t huge on debt around here. However, for many small business start-ups, there may not be a choice. If you’re looking to open up a brand new building or you need lots of equipment, taking out a loan is one of the quickest ways to get access to capital. Yes, taking out a loan comes with some danger to it as well. If the business doesn’t make enough money, you’re gonna be up shit creek without a paddle. You may be stuck paying off a loan that you can’t afford. If you have an established business and it was able to get some credit, not being able to pay it back could mean bankrupting the business. Taking on too much debt certainly has risks. However, taking out a commercial loan is definitely one way to raise some quick capital.
So, if you’d rather not go into debt, another way to raise capital is to sell part of your business. The risk of defaulting on a loan is obviously gone, but there is one other slight issue: you now have a business partner. Yup, by adding somebody else’s money to the mix, you have added their thoughts, wishes, and whims to your business as well. Honestly, the only person that I’d really want to start a business with is my husband…and I’m not even sure about that anymore! Still, if you are not opposed to working with another owner and your small business needs some quick cash, offering a stake in your business may be a great route for you to take.
This is another financing option that small businesses should think about. Factoring is a great option for small businesses because it helps them to improve their cash flow and reduce the risk of bad debt. Essentially, factoring means that a business sells its accounts receivables to a third party called a factor. The factor pays the small business 75-80% of the money that is due to them at the time the receivables are sold. The factor then pays the rest of the money to the business after the debtors pay their bills. In addition, the factor takes on the risk of the debtors not paying. To do this, they charge the business a fee which typically runs between 2-6% of the purchase price. So, the factor wins by earning a fee and the business wins by getting their money quickly and with less risk. Not bad at all, huh?
There are a few great commercial financing options for small businesses. Have you ever started your own business? What sort of financing options did you choose? Let us know in the comments below!