Unsecured small business loans, cash advances and leasing of facilities (instead of buying) are options available to small businesses that find it difficult to raise loans on normal terms. Before we look at these, let us take a look at the standard and venture capital financing options for small businesses.
This page comes under the section Small Business in USA.
If you have a lot of property to give as collateral and have an excellent credit record, you could probably get a bank loan on the basis of your business plan, provided the plan is a sound one. Otherwise, the procedure is to get your business plan whetted by SBA and seek an SBA guarantee for getting a loan from banks or other financial institutions on reasonable terms.
We discuss this option in the article on Government Small Business Loan.
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There are venture capital companies and wealthy angel investors who are looking out for high returns on their investments. Such returns are produced by innovative projects that can achieve a leadership position in the market quickly and command premium prices.
If you do have a project that is innovative or has little competition, and can generate high returns quickly, you can try to interest venture capital investors in your project. This could, however, mean losing control to some extent as the investors could be looking over your shoulder or even taking control of operations. This could even be a good idea as the investors might be experienced persons.
The options mentioned above involve preparing a detailed business plan and also take varying amounts of time before the money is disbursed. In cases where your need is urgent, you have no collateral to offer and probably you also do not have good credit, you are forced to seek other options. We look at these below.
Under these options, you might have to pay rates that are higher than SBA guaranteed small business loans. You also lose the opportunity to have your business program reviewed by specialist agencies like SBA and the small business loans departments of banks.
There are lenders who will extend unsecured business loans to business borrowers with GOOD CREDIT. Some of the lenders would even consider lending to startups. Typical advantages for borrowers include:
You can get to use equipment needed for your business for short or long terms under a lease agreement. You can even opt for leases under which you get the option to purchase the equipment at the end of the lease period at a concessional price. The financier will buy the equipment and lease it to you against a monthly payment during the lease term, which can be a few months or several years.
Advantages of leasing include:
If you do not have good credit, but have a merchant account and have been accepting credit cards against your bills, you can get cash advances. Here again, you don't need any collateral and can get your loan application processed quickly. Repayments would also be easier as the lender might adjust a part of your credit card sales automatically to the loan, and the amount of the repayment can be tailored to the credit card cash flows.
Other options include getting a loan against the unutilized limits of your credit card, and getting a person with good credit to stand as a guarantor. These are rather desperate options to be explored only if you are very confident that you can use the borrowed funds productively to generate good returns.
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With corporate mergers continuing unabated and with more and more downsizing, the opportunities clearly lie in launching a new concept, product, or company. But where do we get the start-up monies? Not from banks or other debt-financing schemes, asserts writer-consultant Evanson. The right approaches are angels, IPOs, alternatives to IPOs, and venture capital. And not only does he outline the viewpoints of these lenders, but he also prepares borrowers well for the reality: contacting and selling, valuing a business, and writing a plan.
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