Types of Debt Financing For Small Businesses

Different Types of Debt Financing For Small Businesses

1. Friends and relatives:

When you need financial back-up for your small business, do not always opt for a commercial borrowing when you have a close friends circle or relatives who are capable of lending money. You need not be very formal in rendering your business plan; at the same time, have a legal agreement for borrowing finance.

2. Supplier credit:

Trade credit or supplier credit is given to small business owners where the customer is allowed to purchase necessary goods on account without paying the money. The amount will later be paid by the customer. This is a mutual credit exchange done between the supplier and the business owner.

3. Clients:

Out of all the types of debt financing this a great option because you can get cash in advance for the work to be done. Customers finance the business in this way and provide few materials of service from their side. It’s not uncommon to claim a cash advance either partly or fully when the service is rendered in this way.

4. Chartered assets:

Reducing cash flow can be done by leasing the assets than buying them. Leasing can be carried out with items which possess long life, transferable use and repossession in case of default. But for a long term idea, it is expensive than that of bank loans.

5. Financial marketing companies:

Commercial financing companies are agencies which provide installment loan for bad credit based on your collateral. They impose higher interest rates than banks and they do not dig too much into your credit history. They also check your ability to pay back the loan amount just like banks do.

“Keep in mind the different types of debt financing available for small business will vary depending on a number of factors.”

6. Equity funding:

Generally loans are a one-to-one option where the borrower gets and the lender offers money. But when it comes to equity financing, the companies provide funding for the business but will not take part in the business operations. There are two types of equity funding namely common stock and preferred stock. Learn How To Make Money With A Blog For Beginners.

7. SBA:

Small Business Administration (SBA) is an organization controlled by the federal government which offers loan for small businesses at comparatively lower rates than the commercial lending rates. SBA installment loans require tedious documentation procedures which is not too much necessary with banks.

8. Venture capital:

Venture capital is provided by the financial backing up companies and they do target businesses which possess long-term growth potential. Startup businesses that cannot approach capital marketing firms can opt for venture capital backup.

9. CDCs:

Certified Development Companies (CDCs) has allotted loan programs which helps small business owners with financial assistance. These are long-term financing schemes provided for fixed assets by selling the SBA guaranteed bonds. CDCs offer finance based on 100% timely guarantee of principle and interest based on the debentures.

10. Diversified government agencies:

Apart from SBA there are various other installment loan programs assisted by the government for providing funds for small business owners who generally do not have access towards the private banks. This is due to the fact that private lenders always require perfect explanation on business plan and also several collateral options in order to provide finance. This is the reason why many businesses approach government agencies other than private lenders. These are available in the local, state as well as national levels.

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