There’s little doubt that we’re facing tough economic times. America’s economy is still struggling to recover from the financial crisis of 2008. Although much media attention focuses on the plight of individuals, businesses are not immune to the ebbs and flows of the uncertain economic tide. Many businesses suffer in silence; they maintain the outward appearance of success while avoiding financial realities. New and emerging businesses are not immune; startup costs end of the dreams of many would be owners before they open their doors. Despite news reports of a credit crunch, there are still opportunities to obtain loans for new and established businesses. Here are some options that you may not have considered:
SBA Loans: The Small Business Administration (SBA) has a long history of providing financial assistance to businesses. The government agency does not provide direct loans; however it does offer guarantees. Business owners can apply for SBA-backed loans. The SBA offers several loan programs, including the 7(a) Loan program for businesses with special requirements, a microloan program for “small, short-term loans,” and the 504 Loan program, whereby loans are distributed through nonprofit corporations called Certified Development Companies. According to the SBA’s website, the 504 Loan program has guaranteed $50 billion in loans, which has resulted in the creation of 2 million jobs. There is more information about SBA loan programs at www.sba.gov.
Direct Bank and Credit Union Loans: Financial institutions continue to provide business loans, but their requirements are much more stringent. Businesses seeking financial loans should prepare detailed financial reports; banks and credit unions will want to review profit and loss statements, forecasts, and accounts receivables. Good to excellent credit is necessary. Banks are reluctant to loan money to businesses with average to low credit scores. Since many financial institutions now require personal guarantees, business owners must also have high credit scores. In the past, credit unions have been more lenient in their loan practices, but they still want to ensure businesses will be able to repay their loans.
Leasing: If businesses are unable to obtain loans to purchase equipment, or if they cannot afford to own equipment, leasing is an alternative option. There may even be a benefit to leasing an asset instead of owning it outright (net advantage to leasing). Choosing to lease equipment can lower the costs associated with running a business. Although lessors are more apt to use a business’s credit history for leasing decisions, they will most likely rely on the personal credit of startup owners.
Loans from Other Parties: Seeking out loans from friends, mentors and family members may be an attractive choice for some business owners, particularly those with little to no credit history. The upside to “friend and family loans” is that they are less likely to require detailed business plans and stellar credit. The downside is the possibility of damaging relationships if any economic troubles arise. One way to alleviate potential problems is by soliciting a business lawyer to draft a loan document. Make the loan process as professional as possible.
Bringing in Investors: If owners are willing to sell a portion of their businesses, bringing in investors, or equity investing, could be a solution to financial issues. Equity investors and venture capitalists seek out opportunities for profit-making enterprises. In return for their investment, they take equity, or ownership in a portion of the business. The ownership stake can take several forms, from stock to managerial control. Since these types of investors are knowledgeable and deal with businesses on a consistent basis, they will want to review solid business plans in their decision-making processes.
Whatever method businesses choose, there are ways to obtain financing to start a new venture or maintain operations. Ultimately, good research and extensive planning will yield satisfactory results, allowing businesses to move forward on a track to success and profitability. Click here to read my blog post on business planning.
The Law Offices of Terry L. Gilbeau provides personalized counsel to clients in a variety of business and personal matters, including creditors’ rights, debt collection, products liability and international transaction issues. His office is located in Rocklin, CA, just outside of Sacramento, CA, near Roseville, Lincoln, Auburn, in Placer County and can be reached at (916-626-5539) or email Terry at firstname.lastname@example.org. Click here for the firm website http://www.gilbeaulaw.com/