What's the best way to finance a Small Business?
Answer:
How to finance a small business is a very common
question and doesn't have a cookie cutter answer.  There are different scenarios for different phases of one's business.  A start up is going to find it more difficult to finance it's operation due to the lack of historical data.  A well established business may have no problem applying for and getting approved for a small business loan.

Credit cards are often a good and affordable way to finance a small business.  Be sure to do your due diligence with regards to revenues and profit forecasting so that you don't over extend yourself. 

The best idea when financing a business with credit cards is to only buy what you need to add to the bottom line.  This means the 40inch Plasma and leather office chairs will have to wait.  Use your credit card to purchase advertising or to pay for a good or service that is directly associated with your revenue model.

Family and friends are another good way to finance a small business.  Again, be sure not to over extend your loans and only borrow what you need to get off the ground.  We've seen plenty of dot com crashes where cash flow negative, venture funded companies have $10,000 Coffee Bars.  This is not smart business and you should consider every penny loaned to you.

If you have been around for a while and have a steady income definitely get a loan to expand your current service offerings.  Buying an additional business can be a great way to grow and can usually pay off the loan plus interest and put some money in your pocket.  I see websites being sold for3 years profit all the time.  If a site makes $10,000/month and they are asking $360,000 for it take out a loan and buy it.  Get a 4 year business loan, pay off the some of the loan each month with the profits and keep the rest.  Again, do your due diligence.  Some web sites have less than stable revenue streams.

The point is, if you can play with someone elses money then do so.  Don't play with your own money.  Be sure not to get ahead of yourself, never borrow more than what you could easily pay off.
  more Q&A sessions like this

Trackback(0)
Comments (1)add comment
written by katiek , March 04, 2008

Financing a small business with credit card debt has limitations and may drastically damage your personal credit. Likewise, receiving money from friends and family can get messy.

However, there are other and better financing solutions, depending upon the business's industry class, asset composition and years in operation. For example, the SBA's 7a loan program specifically funds startup businesses with annual revenues under $2 million. And businesses that own real estate should really explore commercial-backed financing to take advantage of low interest rates.

Hope this helps!


Write comment
You must be logged in to post a comment. Join for free or Login.

busy