The recent economic crisis in the United States left a pall on small businesses all over the country. During the last couple of years, the usual credit lines and business credit cards which kept businesses afloat have seriously diminished



Common sense would seem to dictate that small business owners would be seeking more SBA loans these days but surprisingly, the opposite is true. According to a recent report, no less than 91% of small business owners stated that they have never applied for a SBA loan. When asked why this was the case, 54% stated that they did not need one; 13% said that they would rather use personal assets, 13% explained that they had taken a loan from another source, 11% admitted that they are unfamiliar with the programs, and 6% claimed it takes too much time.

This being the case, where are these small business owners getting the financing needed to keep their business going? The answer is they’re turning to financing alternatives. Here is a breakdown of the most popular options among small business owners today:

  • Taking on a partner – One of the most common ways to increase the asset pool is to allow someone to invest in your company by becoming part owner. The investor brings in much needed cash but also acquires an interest in your business. Partners can be either active or “silent,” but they definitely have a say in the operations. Partnership agreements should always be put in writing to avoid unpleasant hassles down the road.
  • Personal asset funding – Some business owners choose to fund their business by tapping into non-savings areas of their personal assets, home mortgages, life insurance policies, certificates of deposit, individual retirement accounts or pension plans. It is advisable to be cautious when mixing your personal assets and your company’s development. However, if funding is performed on the basis of a comprehensive plan for both the business and the personal assets, it can provide much-needed cash. It is important to regard this type of funding as a temporary or intermediate-term remedy rather than a permanent solution.
  • Angel investors – By definition, angel investors are individuals who choose to personally invest in a business for a variety of reasons such as the opportunity to use their years of expertise in a given field, access to tax benefits and to shrewd investment opportunities. Angel investors are not as stringent as the average lender but they want to be sure that your company will turn a profit. Before meeting with your angel, research his background, interests, and past investments. Be sure to do your homework – when you meet bring relevant written material such as business plans and projections, and make sure you are able to supply the right answers to tough questions.
  • Family members – They say that blood is thicker than water, so turning to a relative for financing is a reasonable step. On the whole, your relatives will probably demand fewer assurances and will be more susceptible to your ideas than professional investors. One way you can repay them is through profit sharing. Try to keep things professional; Draw up a formal agreement so that you will have the terms of the loan in writing. Make sure to always regard these family members as business associates rather than “mom” and “dad.”
  • Business Cash Advances – Business cash advances are less of a hassle than a bank loan. Most business loans require collateral, good credit and a long business history, which you may not be able to deliver. In many cases the business cash advance does not require you to be fixed to a repayment schedule. If things are slow, the financer often agrees to accept a smaller payment. Such advances often do not require collateral or a personal guarantee. Nor are you required to deliver require financials or tax returns. So in some cases, this may be the way to go.
  • Equipment Lease Funding – Equipment leasing does not infuse your business with cash. However, it does reduce the amount of cash that you need to keep your business afloat. If you are cash starved it might be wise to consider the option of leasing, rather than buying, equipment. By choosing to lease you gain access to many types of equipment from computers and copy machines to fax machines, trucks, and much more. An added plus is that due to the monthly payment structure, you can treat the payments as tax-deductible business expenses.
  • Accounts receivables– Accounts receivables financing enables a business to use its outstanding invoices as collateral for funding. The business can choose to either finance its customer invoices or factor them. If you follow the financing route, the business can apply for a short-term loan against its outstanding invoices at 65% to 85% of the invoice’s face value. In this arrangement, the financing company does not own the invoice nor is it responsible for collecting the outstanding debt. If you opt for accounts receivables factoring, the lender is responsible for collecting the outstanding debt from customers. In this situation, lenders usually provide financing reaching 70% to 90% of the total value of all outstanding invoices. Once the customer pays up, the lender must return the remaining balance, minus a small processing fee.

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