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Getting Low Cost Business Financing

By: mistymin

Whether you are just starting your business, or are looking to expand an existing business, getting low-cost business financing can mean the difference between success and failure in your business endeavor. There are several steps which can help you reduce your cost of business financing and make it easier to find.

You may want to consider contacting friends or family members for help in your business financing. Sometimes a family member will be willing to invest money or other resources to help start a business. This can be particularly helpful if the investor has business experience or contacts that he would be willing to share. If you are going this route, it’s a wise idea to draw up a formal contract so both you and your relative know what is being asked and promised. It’s a sad situation when business financing gone bad is allowed to break up a family or ruin a friendship. It’s best to be very specific about what you are borrowing, for how long, and at what repayment terms.


Another option to obtain low-cost business financing is to sell shares in your business. In this instance, you will want to check your corporate structure to make sure the business has been set up in such a way as to allow you to sell shares. Sometimes a family corporation can raise a surprising amount of capital on fairly short notice.

Another method of obtaining business financing with relatively good terms is to pledge your accounts receivables or future credit or debit card receipts. Many companies will load you money even if you have only been in business a short time. You only need document what your merchant account receipts have been. Typically the amount borrowed is some percentage, such as 150%, of your credit card receipts.

A more expensive way of obtaining business financing is a bank loan. Typically, this type of loan is only for those businesses with good credit reports. Before attempting such a loan, you will need to make sure you have a corporate structure such as a partnership or a corporation. A sole proprietorship structure relies on your personal credit report in order to obtain business financing. You will also need to make sure your business credit report is in tip-top condition. It should contain no late payments; have several merchant accounts and at least one, preferably two or three active credit cards. If there is a bank loan in the credit history it’s even better.

You can, of course, use credit cards to fund some cash flow needs, but this is not a recommended way of achieving business financing. For one thing, it’s expensive. Interest rates can run from 5% to over 20%, depending on the jurisdiction. Credit card debt is regarded as more risky by other lenders, so you’d be wise to obtain the financing needed by one or more of the other techniques.

Another high cost type of financing for your business can be borrowing against assets of the business. This is also not a recommended process.

Article Source: http://www.articlesnatch.com

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