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Small Business Financing Options For The Startup

Starting a business is no easy task. One of the biggest problems new businesses face is trying to find the right kind of small business financing.

Written By: William Eve

Small Business Financing

Starting a business is no easy task. One of the biggest problems new businesses face is trying to find the right kind of small business financing.

The first thing that anybody who starts a small business quickly learns is that it takes money to do business. Bills and expenses always come in, but payments often don’t. This means that most start up enterprises will require some sort of small business financing.

The first and perhaps best rule of small business financing is to try and use as little of it as possible. Many businesses fail and end up in bankruptcy because business owners used too much credit, or took out more loans than they could pay off.

The best way to avoid bankruptcy is to always use alternatives to financing when they are available. Covering as much of the business’s operations with cash as possible will generally be the best means of staying solvent. If a business can’t generate enough cash to cover its expenses it probably should not be operating.

Line of Credit Small Business Financing

There are numerous sources of small business financing out there. Indeed many business owners are often surprised by how easy business credit is to get and use.

Banks can provide some very good sources of small business financing, but bank financing can sometimes be hard to get. The first method of small business financing most people think of is a bank loan. The problem with loans is that you will have to pay the entire amount borrowed off whether you use it or not.

A much better deal for small business financing is a line of credit. The advantage to a line of credit is that a business only has to use the amount of credit they need and no more. This means that you will only have to pay off what you actually need.

A line of credit particularly a checking line of credit is usually better than a loan for smaller businesses. Try and get a line of credit or credit cards before getting a loan. Even if the line of credit has a higher interest rate it is usually a much better deal than a loan.

Something many small business owners don’t realise is that many banks will give you a line of credit if you run a lot of cash through your business accounts. Ask about the line of credit when you open an account. Avoiding loans and using lines of credit can help keep a business afloat.

Vendor Credit

Another excellent means of small business financing many people neglect is vendor credit. Many vendors will extend vendor credit - that is they will make merchandise or supplies available to vendors on consignment. Some vendors will also make loans to small businesses.

Before taking out a loan to buy stock, ask vendors about vendor credit. Many vendors will extend it to both new and existing businesses.

Real Estate Equity

Another kind of small business financing businesses don’t take advantage of is real estate equity. Business owners may not realise that they can out equity loans against property they own.

The advantage to real estate equity loans is that they come with a much lower interest rate than other loans. Real estate equity loans may not have to be paid off for years so there maybe a much lower monthly payment as well.

A final advantage to real estate equity loans is that they can be paid off with the proceeds of the sale of the real estate if the business fails. This can enable a person to walk away from a business venture without accruing a lot of debt.

Small Business Financing Danger

Something that everybody who starts a business should consider is this if the business fails you will still have to deal with the debt the business acquires. This means that you could still be paying for financing years after the business is gone.

Keeping borrowing to a minimum can help a business owner avoid having a lot of debt to pay off.

This article was written by William Eve. William writes about saving money, property investment and real estate for Home Loan Finder. If your looking for a home equity loan or a mortgage broker, visit the Home Loan Finder website for great advice and competitive mortgage products.

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