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Types of small business finance

Finding the money you need to finance your small business can be challenging. Small business owners have a number of obstacles in their way when it comes to business finance and it can be quite challenging to find a lender that is willing to take a risk on a company with a small credit history. If you are in need of financing for a small business there are some options that may be able to work. Here are different types of business finance:

Small Business Administration
One source of business finance to consider is working with the Small Business Administration (SBA). They have several loans and small business grants that you may be eligible for. It helps to look at your options with them to see which type of funding will be able to work for your company. To learn about the different types of financing that is offered from the SBA you need to visit their site. You may qualify for a grant if you are starting up a non-profit organization or you are starting a company that focuses on energy-efficiency and other environmental things.

Debt Financing
Traditional lenders are often used for debt financing needs. Your local bank may offer you a loan but it will be tied to your personal credit and your personal assets. Some smaller banks cannot take on loans so you do need to carefully consider this decision in order to find a lender that can help. Larger banks may help but they may have higher interest rates and other things because they are concerned about the risk. Debt financing normally comes in the form of a line of credit or a small business loan. You will have a well-defined timeline that you need to meet in order to live up to the agreement. It is also necessary to front collateral for the loan. If you have business assets, use them as collateral so you aren't using your personal credit or your home in order to secure the loan.

With debt financing you do need to have a good credit history. This shows lenders you know how to manage your finances and you will have an easy time managing your company books. The credit rating you have will greatly impact your ability to get a loan so you need to check on this before applying for a loan.

The business must also have good cash flow records to show. The banks need to check on your company income to justify a loan. They want to see a company that has healthy cash flow and a good business plan to prove that you can stay in business during hard economic times.

Equity Financing
When you turn to equity financing you will have a very different outcome. You are giving up part of the control of your business to investors. In some cases investors will not care and they won't want to be too involved in the day-to-day affairs as they focus on the bottom line more than anything else. The nice part about equity financing is that you do not need to pay back the money with interest. This makes it much easier for you to get the money necessary to run the business without worrying that you are going to have large bills to pay off each month. Equity financing is often used for long-term financial needs. The investors want to see high returns so they will invest for the long-haul to see big returns on their investment as your company grows. Equity financing focuses more on the potential success of your company versus the short-term needs of the organization.

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