How you finance your business may decide the fate of your venture. Financing is a huge aspect of any business and knowing all the possible sources is another. Having the right knowledge can help you make the right decision for your business. There are many sources of financing available for entrepreneurs. For some additional ideas, you may want to check out the Handbook of Business Finance at http://uentrepreneurs.com. The following is a list of top 10 best sources, ordered from least to most attractive options, with a purposeful omissions – VC’s and your own savings.
10. Bank loan: Banks provide short-, mid- or long-term financing and they finance all asset needs including working capital, equipment and real estate. But banks require personal guarantees or even secured interest on personal assets. Banks do offer some flexibility in terms of paying off loans early and terminating the agreement.
9. SBA 7(a) loans: This is one of the best debt-financing programs. It guarantees the lender against a portion of any loss incurred on the loan. The interest rates can vary based on the size of loan. Depending on the bank, the lender might offer you a better rate if they can sell guaranteed portion of loan to insurance company or pension fund.
8. Local and state economic development organizations: Economic development organizations can charge really low interest rates as compared to banks. Development firms may not agree to finance the complete operation but they might make it a lot easier getting money from other private sources. Talk to your local chamber of commerce to find such programs. Also check out www.infinancing.com for a list of the types of development finance organizations.
7. Customers: Ask for advance payments from your customers. Assuming the terms are not too onerous, they might be able to give you cash at low cost. This will also show their commitment in your venture.
6. Vendors: Dick Schulze built Best Buy from large consumer electronics firms, including his suppliers. It’s important to be cautious about selling yourself to the powerful suppliers.
5. Friends and family: If you are lucky, friends and family can help you with some money. They might not mind getting a nominal interest rate for lending you the money.
4. Small business innovation research (SBIR) grants: SBIR grants can be a great way to turn your intellectual property into mailbox money. For more on these grants, check out How To Get Uncle Sam To Fund Your Start-Up.
3. Tax increment financing (TIF): TIF subsidies sometimes as large as 20% to 30% of your project are geared towards real estate development in targeted areas. You might want to explore some options farther from your office if your community does not offer TIF Program.
2. Internal Revenue Service: The IRS will allow you to deduct expenses. Evaluate if you can use your profits to expand your business and reduce your tax bill.
1. Bootstrapping: Many billion-dollar entrepreneurs find ways to grow without external financing—this ensures that they don’t give away control of their destinies to financiers.
For the full article, please visit: http://www.forbes.com/2010/07/06/best-funding-sources-for-small-business-entrepreneurs-finance-dileep-rao.html
Thanks for reading, and until next time… stay WISE!