Crystal Clear: What’s in Store for Small Business Financing?



The word “loan” is the four-letter-word of the finance industry. Issuing a loan is risky business because it takes a lot of effort, skill, and a little bit of luck to succeed in business. Most lenders don’t want to risk their money on a beginner – even a promising beginner. But, at the same time, you need money. Here’s how to get it, even in this economic climate.


Businesses Need Proven Ideas


Going forward, you need proven and provable ideas if you plan on going to a bank for funding. You can’t rely on good ideas and unproven concepts to carry you forward. You’ll need a rock solid business plan, past successes, and probably an endorsement.


Angel Investors May Be The Only Way To Get Started


Angel investors are private investors that lend you money in exchange for part ownership in the company. That ownership allows the investor to receive a share of the profits of your business. And, this is where the selling comes in – you must sell the investor on your business idea. It must be good enough that the angel believes in you.


Usually, angel investors require that you have a proven management team behind you, if not experience. However, they tend to be a lot more lenient than banks when it comes to lending. They don’t necessarily require a full-blown credit report, but they want to see that you’re a trustworthy entrepreneur and that you don’t have previous problems in business.


If you do have previous failures, they will of course want to know about them and the circumstances.


Bad Credit Loans


These bad credit business loans are the outlier, but they may prove useful for many businesses as the trend of bad credit lending strengthens. Many small business owners carry their own personal credit with them, since they don’t have any trade lines or any business credit to get them started. Consequently, they don’t have any way to get credit when that credit is poor or they have a high debt to income ratio.


Enter bad credit loans. These types of loans offer credit at higher interest rates than normal, but they also allow businesses to get cash when they otherwise would get nothing.


Trade Lines


A trade line is a line of credit with a business. This line of credit lets you purchase goods without paying for them upfront. Like all lines of credit, you are expected to repay it. But, lines of credit may not be amortized. In other words, there may not be a set repayment plan for the credit.


Some trade lines do, however, have set repayment periods that you must adhere to. These repayment periods may be 3 months or less. Some allow for 6 month repayment plans. It all just depends on the company, the goods you’re purchasing, and how well you’ve built up credit with the company.


Building up your trade line is usually suggested as the first step in establishing business credit, and it can be done in stages. Once you’ve got several trade lines open, you can apply for a DUNS number, which allows you to start trading on your business name, instead of your personal credit.


Advance On Accounts Receiving


Also called “invoice factoring,” This method of funding lets you trade in unpaid invoices for cash now. This is especially helpful when you have a lot of outstanding invoices, but you need to get your cash flow moving to reinvest in the business.


A lot of companies, like construction, IT, and service professional services, bill clients with the expectation that they will pay within 30 to 90 days. Really, this is nothing more than a financing scheme for the client.


And, often, clients don’t pay on time because they’ve already received the services so they don’t feel rushed to pay for them. When payment is accepted in advance, you don’t have these problems. But, at the same time, some businesses aren’t set up to bill in advance.


For example, if you own a construction company, you’re not going to bill the customer in advance for a project – not going to happen. The customer won’t pay, and you don’t know how much material you’ll actually use, what problems you’ll run into, and any design changes that need to be made last minute.


So, you invoice the customer after the fact. Sure, you may charge them an upfront cost based on materials, but labor is always paid in arrears.

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