What Are My Financing Options?
Since every business requires some form of financing, raising sufficient capital is integral to the success of any business.
Here are four financing alternatives to consider:
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Working lines of credit
A working line of credit from a third party lets you withdraw funds on an as-needed basis as long as you are within the credit limit and in compliance with the loan covenants (e.g., debt-to-equity ratios, collateral ratios, etc.).
With a working line of credit, you repay interest and principal based on an amortization that is calculated on a monthly basis and tied to the maturity date of the facility. You also have the right to re-borrow principal after it is repaid (much like a credit card).
Term loan from a credit facility
In this option, you receive the entire loan amount at once and repay that amount plus interest on a fixed payment schedule.
Borrowing from friends and family
Asking friends and family for credit and/or equity financing may not be the best choice because it can put a strain on your relationships. On the flip side, if your business is successful, it could strengthen your relationships.
If you decide to tap into the pockets of those with whom you have relationships, make sure the borrowing is structured to be an arms-length transaction and that the terms of the loan are comparable with those in the credit market.
Angel financing
Business “angels” are individual investors of high net worth who are most likely to fund companies in their very early stages. They seek high returns through private investments. Angel financing usually occurs before the business reaches financial sustainability from an operations perspective.
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