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Navigating Alternative Financing Waters

The American economy relies on small businesses for stability and growth. The ability for small businesses to grow, expand, and succeed requires consistent and reliable access to capital. Young companies rely heavily on external debt, receiving about three-quarters of their funds from banks via loans, credit cards, lines of credit, and other resources. 

The increased demand for quick and easy access to working capital has sparked intense competition among lending institutions to provide alternative products that meet the needs of small businesses. The type of financing these businesses require varies depending on the industry and stage of the business. 

Starting a Business  

The average cost to start a business can range from a few thousand dollars to hundreds of thousands depending on the nature of the business. It is often difficult to get approved for a loan because most lenders want to see a record of accomplishment for success and profit, anywhere from eighteen months to three years. 

If you are starting a business and need start-up capital, first determine how much you need by itemizing all the costs you expect to incur as you start the business, and then investigate raising the necessary funds. If securing a bank loan is not possible, consider reaching out to your immediate network of family and friends to raise the initial seed money, utilize personal savings or credit cards. 

Growing the Business 

Once you have your business off the ground and have established a record of success, it may still be difficult to obtain a small business loan to finance business-growth operations. Look for alternatives to traditional lending until you can qualify for traditional bank financing. Your bank will be able to tell you their requirements when applying for a loan or line of credit. Local Small Business Development Offices or the local Chamber of Commerce is a reliable source of referrals. 

Keeping Business Healthy and Strong 

There really are no one-size-fits-all lending solutions for business. Choosing the right alternative for the business need is key. 

Microloans can be a useful source of capital. In later-stage business, SBA (Small Business Administration) lenders or community banks/credit unions have multiple products and options. Receivables-based financing providers (factors) are good for B2B businesses that need capital to cover the period between sending an invoice to their client and when the payment is received. This creates a 60-to-90-day bridge for receivables, which can help streamline cash flow and strengthen a business. 

There are many options available for small businesses wishing to obtain the capital they need to start up, sustain operations, expand, and succeed. Having a solid understanding of the options available and how they measure up is key to determining the options that are best for your small business.  * Subject to credit approval. 
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