Choosing the Right Capital for Your Small Business

When it comes to the world of business financing, all money isn't necessarily good money when it comes to borrowing capital to grow your what exactly do I mean? I've had several recent clients come to me in need of capital and in most instances they have no idea what type of debt instrument they're looking for. Usually they simply want to know how much money they can get and how fast they can get it. This is typically a recipe for disaster, especially if you're dealing with a bank or "consultant" that only has a few products to offer, has no regard for the long term sustainability of your business, or both. So let's explore a few of the most popular loan and financing products to determine if they're right for your small business. Business Credit Cards Advantages - A business credit card can provide several benefits when in comes to streamlining your accounting. Business credit card statements make it easy to reconcile company expense reports, track purchases, and itemize your tax deductions as well. Another benefit is that you may be able to earn spending points that can be exchanged for airline miles, cash or other business related expenses.

Another advantage of a business credit card is the fact that it is revolving account. This allows you the flexibility to use the card for additional expenses on an ongoing basis as long as you are consistently paying down the balance. Lastly, provided you pay your bill on time, many business credit cards companies will report your good payment history to the major business credit bureaus which will help build your business credit. Disadvantages - When evaluating the disadvantages of a business credit card, the primary concern is having a high interest rate cards. Many business credit cards will have low introductory rates that may increase significantly over a six to eighteen month period. The interest rate could also increase if you are late or default on your monthly payments as well. Delinquent payments or defaulting on business credit cards may also adversely affect your business credit rating and ability to secure additional financing in the future.

Business Loans Advantages - The primary advantage of a bank loan is that banks are convenient and readily accessible since they are used regularly both for personal and business banking. Banks will typically offer different loan options depending on your business or industry. Bank loans usually have lower interest rates than most other business financing options, and do not require equity sharing or ownership participation. There are also tax benefits to taking out a business loan, as the profits used to pay the loan is tax-exempt, and they will often report to the major business credit bureaus on your behalf. Disadvantages - The main disadvantage of a bank loan is the fact that they can be very difficult to secure based on the cumbersome application and qualification process usually involved. That said, if time is not on your side, getting a bank loan may not be in the best interest of your business if you need quick capital.

Banks also prefer to work with established businesses able to show a track record of revenue, strong credit history, and consistent performance, which makes it almost impossible for start-up businesses to qualify for funding. Also, the amount of collateral required to get approved for a bank loan may cause the business owner to lose their home or other personal property should the business fail. Private Equity Advantages - In additional to securing the capital you need, a private investor may be a valuable resource when it comes to building your business. As many investors are business owners themselves , they may be in a position to offer direction and strategic advice on how to grow your business. The interest rates, though typically not as attractive as institutional lenders, may be equitable given the collateral required to secure needed capital. Disadvantages - In some instances, private investors may want to take an ownership interest in the business in exchange for the capital to get your venture off the ground. This may cause a loss of control and could add a degree of scrutiny and financial pressure not typically experienced with a traditional bank loan. You may also have to agree to certain restriction in terms of personal compensation and/ or involvement in other businesses as well. These are only a few of over 30 available funding products available through our business financing program. Schedule a Free Consultation to find out which financing options are right for your small business.

About the Author Kylon J. Trower is 20+ year serial entrepreneur with a background in residential and commercial lending, business credit development and financing. Most recently, he's built a national network of financial professionals dedicated to preserving the lifeblood of our economy, the American small business sector.

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