Thursday, August 19, 2010

How to Fund Your Business Without Giving Up Equity

Although there are many methods to finance and capitalize a company, the financing transaction is usually structured and secured in one of two ways. Either your put up collateral as security or you give up some ownership of your company (equity).

Both methods have their benefits and drawbacks. One of the major benefits of using collateral instead of giving up equity is that you retain ownership and control of the business. This can be very important for business owners who want to retain their independence. When you sell equity, the buyers become your new partners - for better or for worse.

Most small and medium sized companies look for financing because they have cash flow problem. Although you can fix these problems by selling equity and recapitalizing the company - it's not always the easiest solution.

One business financing alternative is to get a business loan. Although business loans are a popular tool to finance a company - they can be hard to get. The current lending environment is very difficult and institutions are only extending loans to very low risk ventures.

To qualify, most companies need to have strong financial statements, multi year profits, seasoned management, substantial collateral and good growth potential. Few companies meet these criteria, especially small and midsized companies.

If the cash flow problems are caused by slow paying clients - rather than by low sales - invoice financing may be the right solution. Invoice financing is a simple solution that provides a funds advance on your slow paying invoices.

It plugs the cash flow gap, providing the money you need to pay suppliers, employees and other business costs. More importantly, it smoothes out cash flow, providing predictability and allowing the business owner to focus on other tasks.

Most invoice financing transactions are structured as two advances. The first payment is given to you as soon as you invoice your client. It's usually 80% of the invoice. The second advance, which is 20% less the financing fee, is given once your client actually pays the invoice.

One of the advantages of invoice financing is that is easier to get than other forms of financing. If your business is free of liens and encumbrances and you invoice credit worthy commercial clients, you have a good chance of qualifying.

By : Marco_Terry

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