Different Methods of Raising Business Capital

by / Thursday, 19 October 2017 / Published in Financing Blog

When you partner with a trusted source for your financing needs you get more than just a loan.  We provide our customers with outstanding support through all phases of the lending process.  Even if we are unable to secure the financing you need, we stand with our customers in providing expert advice on other options that may present themselves.  In this article, we take a look at some alternative financing methods and their benefits to the business owner.

Secure an SBA Loan

  • Loans guaranteed by the U.S. Small Business Administration have become increasingly popular over time. So much so that funds for SBA-backed loans have run out a number of times. And while SBA-backed loans are open to any small business, there are a number of qualifications, including:
  • Under law, the SBA can’t guarantee loans to businesses that can obtain the money they need on their own. So you have to apply for a loan on your own from a bank or other financial institution and be turned down.
  • In order to qualify as a small business, your firm needs to meet the government’s definition of a small business for your industry.
  • Your business may need to meet other criteria depending on the type of loan.
  • After determining that your business meets the qualifications, you need to apply for a commercial loan from a financial company that processes SBA loans since the SBA doesn’t provide loans directly and some bank’s qualifications may be more stringent.

Tap into Your 401(k)

  • If you are unemployed and are considering starting your own business, those funds you’ve accumulated in your 401(k) over the years can look pretty tempting. And thanks to provisions in the tax code, you actually can tap into them without penalty if you follow the right steps. The steps are simple enough, but legally complex, so you’ll need someone with experience setting up a C corporation and the appropriate retirement plan to roll your retirement assets into. Remember that you’re investing your retirement funds, which means if things don’t pan out, not only do you lose your business, but your nest egg, too.

Try a microloan

  • If you lack a credit history, collateral or the ability to secure a loan through a bank this doesn’t mean no one will lend to you. One option would be to apply for a microloan, which is a small business loan ranging from $500 to $35,000. Microloans are often so small that commercial banks won’t consider them. Instead of a bank, you might need to turn to a micro lender which is usually a non-profit organization and works differently than a bank. Microlenders offer smaller loan sizes, usually require less documentation than banks, and often apply more flexible underwriting criteria. There are companies that do offer microlendering throughout the U.S. and they often charge slightly higher interest rates for loans than banks. “Microloans are really for that startup entrepreneur or an entrepreneur in an existing business facing a capital gap who needs to secure capital for new equipment or to service a contract,” says Connie Evans, president and CEO of AEO, which represents 400 mostly non-profit micro lenders and microenterprise organizations.

Consider Factoring

  • Factoring is a business financing method where a company sells its receivables at a discount to get cash up-front. It’s often used by companies with poor credit or by businesses such as manufacturers, which have to fill many orders long before they get paid.

These are just a sampling of alternative methods for raising cash for your new or growing business.  At First National Capital Advisors we can help guide you through the maze of business finance.  Give us a call today.