Small Business Financing Options

financing options for small businesses in southeastern michiganMost people think of bank loans when they hear of financing, but there are so many other options available to the small business owner. Credit cards, 401k’s and personal savings accounts are NOT financing and should be avoided when possible.

  • Debt financing is the most common form of leveraging for cash. Banks, financial institutions and individuals will arrange the loan usually after collateral, cash flow and a Business Plan are analyzed. This is an attractive method for small businesses as it does not give up any equity in your company. SBA loans or traditional Lines of Credit fall into this category.
  • Equity financing is where an investor receives part ownership of a company in the form of stock or partnership percentage. Equity can be received as cash, equipment or even property, such as building is contributed.
  • Grants are available thru SBIR, the Small Business Innovation Research program, (refer to www.sbir.gov for additional information). SBIR is a federal government program designed to encourage and stimulate technological innovation for commercialization. Also refer to your state website for possible in-state grants. For instance, in Michigan, visit www.michiganadvantage.org/Business-connect. Grant money is “free” money but restricted in its use. Often comprehensive reporting requirements follow the grant money as well.
  • Venture capitalists look for the cream of the crop small businesses with high potential. Because your corporate financial risk is a factor, venture capitalists seek a very high rate of interest and often shortened return dates.
  • Angel investors have expertise and strategies to assist a small business. With over 100,000 angel investors helping companies, they are not as rare as you may think.
  • Strategic investors, under the venture capital umbrella, operate in a competitive marketing and sales environment that surround your small business to assist in raising the additional funds needed. This becomes a very complex relationship that requires legal intervention for protection of your product and customers.

The financing options above allow a small business to become viable. Financing should never be arranged without discussions with your financial expert, i.e. Padgett accountant. When not entered into appropriately, financing can cause a business to hemorrhage and the only company or people that benefit are the financiers.

Disclaimer: No implication is intended as to the best financing option. Please contact your Padgett professional to discuss what the best financing option may be for your small business.

Call Christy at 586-323-2360 to start working on your options.

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