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There are a wide myriad of ways to get small business financing, and in this blog, we will discuss some of the traditional — AND the so-called “alternative” — ways of financing your new business venture. Believe it or not, it’s not as difficult to finance as you think!
Traditional Financing Methods
Invoicing Advances: it happens to the best of us — we get a client that takes his/her time in paying invoices. In order to bridge the gap between companies that have paid their invoices, and obtaining new business from new companies that may indeed pay their invoices on time, companies such as Fundbox offer what’s called “invoice advances” so you can fund your business appropriately from past due invoices.
Selling Assets: of course, you shouldn’t sell important assets — like the house you live in — to finance a fledgling business. However, you may have some assets that you were unaware that you had (such as an antique car) that, should you sell them, can provide important financial benefit to your fledgling business.
Angel investors and venture capitalists: an angel investor will often come into the picture during the company’s first stages of growth, and will expect about 25% ROI. Angel investors have helped companies like Google, Yahoo, and Costco become the juggernauts that they are today, but they often invest less money than venture capitalists. With venture capitalists, even though they invest more money, they own a part of your business. Venture capitalists also come in when your small business is past the initial “start-up” phase and actually is beginning to see growth.
Home equity loan: not all small business owners will qualify, but there are a select few that will be able to pull out the equity of their home to finance their small business. Talk to us to see if this is an option for you.
Alternative Methods of Financing
Unfortunately, there will be some small business owners who don’t qualify for traditional ways of financing their small business. Fortunately, however, there are plenty of alternative methods that these small business owners can consider partaking in. Here, then, is a list of alternative methods of financing that small business owners can consider:
Portfolio Loans: let’s say that, as a business owner, you have an extensive portfolio of investments that isn’t earning as much as it should. With a portfolio loan, you’ll be able to “cash in” on the value of your portfolio to finance the cost of your business. Be sure, however, to make sure that you’re aware of the potential tax liability of doing this — talk to us, and to your accountant, before you take this option.
ROBS: better known as “rollovers as business startups,” this a great way to put a 401(k) from a previous job to good use. It’s estimated that about 30% of new businesses are financed this way, which may also give some insight into the country’s future business trends. It also has a great tax benefit; those who take this option can avoid incurring a tax penalty for “cashing in” on their IRA early. Of course, it goes without saying that you should enlist the aide of a professional to make sure that this rollover goes off without a hitch.
Unsecured Credit: this is perhaps the least favorable of the three options presented, because it carries the most risk. However, if all other options have been exhausted and aren’t feasible to finance your small business, this just may be the only way to go. Again, talk to a professional to make sure that this is the case.
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