Small Business Finances

Most banks and other traditional lending sources are understandably reluctant to provide small business finance, especially a start-up. Even businesses who have established that have only been around for a few years may find it difficult to obtain necessary financing. Small businesses are risky investments, and the selection criteria for lending from these institutions is strict and most times unyielding. Banks rely upon stable histories and on-time payments to vendors and other credit criteria that a small business owner often cannot provide, due to the ups and downs of the business cycle. If your business is less than five years old, it's still considered a risk by traditional bankers, unless you're wildly successful. Most small businesses don't fit this criteria, but need financing to expand and ironically fit the criteria lenders are looking for. If outsourcing your financial needs at this stage of your business life is not possible, take heart, you can still obtain the small business financing you need.

List Assets And Liabilities

When you approach the subject of small business finance, you'll still need to know the state of your business. If you haven't written a business plan, now would be the time to do so, because writing a plan will force you to think and evaluate your business in ways you may not have done before. A business plan will force you to think like a banker when assessing your business's capabilities. You've got to determine how much ready cash you have to invest in your expansion. Those sources you approach for loans or investment in your business will want to know how much you've personally invested in it. If you haven't risked enough of your own funds, don't expect others to cough up ready cash, even if you've developed the best widget on the market.

Seek Out Relatives for Small Business Finance

Relationship financing is probably the most widely used but most dangerous form of small business financing because it involves enlisting the aid of family and friends. While family members and friends may be more forthcoming and wiling to aid you in your financing needs, the risks of failing to repay has grave consequences for relationships.

Relatives can be especially harse should you fail to meet your obligations, broadcasting unceasingly to other family members about how you screwed up. Nothing can destroy a friendship faster than a failure to repay a loan. No matter how understanding your friends may be, money is money, a separate issue from friendship. The difference between family and friends is that while family members never let you forget, they will allow you to attend family gatherings. Friends may sever the relationship. At the very least, the relationship may be permanently damaged.

Financing With Credit Cards

Credit cards offer short-term solutions to financing, and are the most expensive methods of obtaining funds. Sure, you can purchase supplies that need to expand up to a point, depending upon credit limits. But maxing out all your cards doesn't make good business sense. Should something go south, consequences for maxed credit cards will fall upon you hard should you be unable to make minimum payments, or if minimum payments or interest rates suddenly increase. All it takes is one late payment and all your unsecured lenders or credit card issuers may raise their rates or jack-up other costs until the financial wall you face can be truly mountainous. And once damaged, your credit record will take a long time to repair. Most credit marks will stay on your account record for seven years, which is bad for the long term when you become stable again and again seek bank funding. Short term impacts to your Credit Scores will become a roadblock to other financing.

Life Insurance Policies And Retirement Plans

You do have the option of canceling your life insurance policy for its accumulated cash value if you don't have dependents. But if you do, it's a dangerous move. So is touching your retirement savings. Once these funds are gone, you'll have nothing, and replenishing the plans may take years and sometimes cannot be returned to original levels.

Home Equity Loans

This is the most dangerous option to consider in small business finances, requiring careful review of your financial situation. While home equity loans may be easy to obtain, you're risking everything. One misstep or downturn of you business cycle cost cost you your family's home. Before you take such as drastic step, consult with your family members. If there is any reluctance on their part, scrap the idea.