How to Finance a New Business

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Acquiring a business loan in today’s marketplace can be challenging. In the same way that we have seen tightening of lenders in the residential market, there has also been a decrease in the money available to business owners.

However, there is still money available. As an entrepreneur you might have to be more creative and diligent to get to it. It is true that conventional bank lenders are scrutinizing every potential loan more than ever. Without perfect credit and a great financial statement, many businesses are not going to qualify for a bank loan in this market.

Luckily, there are other options for the entrepreneur. If you have assets such as land or a building with equity you may want to go with a hard money loan. Hard money loans are commercial loans that use hard money assets, usually real estate, as collateral. Lenders are willing to take on more risk if they have collateral that can be foreclosed on if the borrower defaults on the loan.

Do you need funds for a new company? Venture capital might be your best option. There are two main forms of venture capital sources, venture capital investment firms and angel investors. Venture capital investment firms are large companies that pool money from investors to loan to small businesses. They tend to make medium to large loans for all kinds of businesses. Angel Investment Groups are smaller groups of individual investors that get together and make loans to businesses. Both types generally loan startup money, sometimes called seed money, but they may also provide money at later stages of business called mezzanine financing.

If you have an established business but do not have real estate assets to use as collateral, you might be able to create capital through an accounts receivable loan. This type of loan uses a companies’ outstanding account receivables, money due for services already rendered, as collateral. These are short term loans to provide cash flow until the accounts are paid.

These are just a few examples of the many types of loans still available to entrepreneurs and business owners in a tight lending market. While many banks may not be willing to take on a lot of new risk in this current economy, there are savvy investors who are looking for the right opportunity to lend money. If you are a business owner in need of startup capital, funds for expansion or even payroll, don’t despair. You just have to explore the alternative options available.

Source by Karen Morgan

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