Small Business Funding Scenarios

There are a number of different ways that you can appropriately receive the capital that you need in order to develop or expand your business operations. The most common method of financing a small business is to obtain a line of credit or a bank loan in regards to this matter. Of course, with the economy having substantial issues, the number of banks providing conventional business loans is limited. This is due to the fact that the risks associated with providing a new business loan are extremely high. As such, many people have turned to the Small Business Administration in regards to receiving a guarantee on this type of financing. The SBA often provides a total guarantee of up to 80% of any specific credit facility. However, it should be noted that you will still need to have the appropriate collateral and credit score in place if you are seeking financing via this method.

The second most common type of funding scenario is through the usage of funding from friends, family, or angel investors. These private investors often want a piece of the business in exchange for the capital that they provide to you. It is important to use a significant amount of caution when you are dealing with friends and family. As a rule, you should conduct all of your capital raising transactions on an arms length basis. If you are using angel investors then you are your certified public accountant should work closely together to determine a fair percentage of your business to sell to a third party. A CPA can provide you with a preliminary valuation of your business when you are working with angel investors or venture capital firms.

In closing, there are many different ways that you can obtain the capital that you need. However, each funding scenario has its strengths and weaknesses. In the case of debt capital, you will not need to provide any part of your business to a third party, but you will be required to pay a substantial monthly interest and principal repayment. In the case of equity capital, you are going to need to sell a portion of your business to an investor that could potentially take control of your business if you do not execute your plan properly. As such, you should take all of these issues into account when you are determining which type of capital is best suited for your business.