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I’ve been talking with a lot of business owners that are looking for financing. Last week, I gave you a bunch of things to think about before you even start. This week, I am going to present you with a bunch of different options you have for financing. So if you want last week’s video, it’s right here and let’s dive right into your options because there are a bunch of them.
Let’s start with traditional bank loans and I’m lumping SBA loans, Small Business loans under this category. These are probably your cheapest sources of capital, but not everybody can always qualify for this. They often require extensive paperwork and collateral, especially for the larger loans. Within this category though, I also want to touch on lines of credit. I feel that all business owners should have a line of credit just to handle whatever comes up. It may not be appropriate for financing a large project, but this is something that you can put in place before you need it and then have it there for emergencies. Under this traditional financing, I also want to mention credit cards. Credit cards are probably your most expensive source of capital. So use them judiciously and pay them off monthly.
Next is equity investment. Angels, angel investors or venture capital. There are lots of variations in this arena. They typically offer money plus expertise. It usually involves giving up some equity. Some of them may start as debt financing and convert and this can get very complicated, far more complicated than a three-minute video. But one thing to keep in mind here is that it typically requires you to give up some control of your business.
And finally, I’m going to talk about nontraditional financing options and there are a whole bunch of them. There are things like special purpose equipment, leasing or equipment financing, something called factoring where you can get money for invoices that are outstanding, and a whole bunch of other options, asset financing, and other kinds of ways to get money. The key here is this can be very expensive, and you need to really, really watch the fine print. I’ve seen things like no prepayment options or no prepayment benefit. I’ve seen things like interest rates that jump astronomically if you’re two days late with a payment and requirements that they do direct withdrawals from your bank account. So just make sure you know what you’re getting into.
If you have any questions about this, feel free to reach out, There’s a lot to it and I’ll be back next week with a new Fiscal Fitness Tip of the Week.