Business Finance Options for Start-up Companies
Money is the lifeline of a start up company. In most cases, it determines whether the business develops into a full-grown and successful company or gives up before it can develop its branches.
Business finance means money for the company. There are several types of business finance options young companies can look into in order to build up the capital:
- Angel Investor – Also known as business angel or informal investor. An affluent individual who provides capital for start-up business is called angel investor. The capital is offered in exchange for convertible debt or ownership equity. They are excellent source of finance during the early stage of the business. Angels are willing to invest up to five years or more and are willing to step even if there is too much risk for banks to consider.
- Commercial Banks – Small business are fond of commercial loans because they don’t require small tycoons to turn over equity or company control. However, money owing can drain a young company with limited cash flow; thus, this venture should be handled very cautiously and expertly. Bank loans as a source of business finance look into the operating history of the business and require collateral in order to secure a loan.
- Invoice Discounting – This is a form of short-term loan best resorted to in order to improve the company’s working capital and cash flow situation. This type of business finance allows a company to draw money against the sale invoices even before the actual payment of the customer. This is facilitated in a way that the business borrows a percentage of the value of its sales book from a business finance company using the unpaid sales invoices as collateral for the loan.
- Home Equity Loans – This is a cost-effective alternative because they offer the best interest rates among business finance types. But it means that one has to risk the family home to the undertaking of the business. It is advised that one has to carefully weigh the risks involved before considering this option.
- Small Business Administration – In this type of loan, the federal agency does not loan the money directly. As an alternative, it guarantees 75 percent of individual loans made by private lenders. A business has to show that it cannot acquire conventional financing at reasonable terms. Then the business owner must personally guarantee SBA loans and show a cash flow which is sufficient to repay the loan.
Money makes the world go round in the business industry. It is the blood of the business. For start-up companies, it is important to find a business finance company that offers the most business-friendly financial investment.
