Whether
you are starting a new business or you need money to grow or make improvements
to your business, you are probably wondering if you will be able to find
financing with the credit markets so tight right now. Your ability to find
financing depends on thinking creatively and looking to alternative sources offinancing. Here are 5 possibilities to get you thinking:
1. Using Trade Credit or Vendor Financing
Use
your relationships with vendors and other businesses to acquire equipment and
supplies or for construction. Using trade or vendor credit to finance start-up
or expansion helps both businesses and builds relationships. Even if you are
just starting out, you can establish relationships with other local businesses
or suppliers by buying a few items and paying them off immediately. The more
you do this, the more willing they will be to finance larger purchases later.
2. Selling Your Accounts Receivable
If
you have an accounts receivable balance, you might want to consider accounts
receivable factoring, which is basically the sale of your receivables to a
company called a "factor," who will pay you a percentage of the
balance and will collect the amounts owed. Your ability to get cash for
receivables depends on their quality (how long they have been outstanding) and
the type of receivable (personal or business), among other factors.
3. Equipment Leasing
If
your expansion or start-up plans include equipment or vehicles, consider
leasing instead of a loan. Even start-up businesses have the ability to lease
equipment instead of buying it outright. You may be able to get a lease more
easily than a bank loan, because the equipment vendor is likely to be eager to
sell. Lease costs are often higher than loans, but that may not always be true,
and your lease may qualify for depreciation deductions. Using
4. Using Business Credit
Using
personal credit cards for business purposes is risky, because it can put your
personal credit rating in jeopardy. Establishing and using business credit,
including business credit cards, can save you money and put you in a better
position to obtain bank financing.
5. Financing from Family and Friends
Consider
the benefits and drawbacks of getting start-up or expansion financing from a
family member or friend. Family/friend financing can be a good way to give you
flexibility in payback, but you want to create an "arms-length"
transaction so you don't destroy the relationship.
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