No business ever started with more than enough funds. With this in mind, every business out there needs funding. Business Finance is used to obtain assets which will help your business make more money, to purchase capital items, to increase holdings of trading stock and supplies, fund research and development and expand distribution and develop new markets.

To find the right business finance provider for your business, you should know the types of finances available for you.

Debt Financing

Borrowing from banks or financial institutions, provided specific terms and conditions for repayment is called debt financing. Businesses who are into debt financing accept a direct obligation to repay the funds within a specific period of time. Here are the sources for debt financing:

Friends and relatives – advantage is that they are likely to give flexible terms of repayment than other lenders. They may be willing to invest more on your business and try to become involved in management. It is advisable that you create an agreement to avoid future misunderstandings.

Banks are the sources of most businesses finance. There are many types of banks but generally they exist to accept loans and deposits. They are very cautious when making loans so it may be hard your young businesses to have banks as their source.

Credit Unions are common providers of business finance. They intend to help members of a group, like members of a labor union. They give funds with more favourable terms than banks. However, the amount of money they can lend you is usually not as large.

Finance companies are another option. However, they charge higher interest rates than banks and credit unions; but they do approve more business finance request.

Equity Finance

Investors provide funds in exchange of shares in your business. They provide total risk capital and have no security to call if your business does not earn as expected. This type of business finance may be sourced through the ff:

Joint Venture – two or more companies agree to share capital and resources, involving financial support and sharing of risks. This arrangement brings efficient commercialization, acceleration of revenue growth, and expansion of domestic markets.

Venture Capital Funds – business finance providers who are often generous usually think that they will get big returns in a short span of time. They offer share capital. They tend to invest in risky ventures who find it difficult to get a loan from a bank. Advantages would be substantial amount of capital and no repayments to worry about. Disadvantages would be a sacrifice of large part of your company and will not be viable for small and medium businesses. They usually invest over ?1M .

Business Angels – these are wealthy individuals who invest in groups and expect high return for their investment. They are willing to be a business finance provider for small business, giving help and sharing their first-hand experiences. You may want to contact the British Business Angels Association for business angel networks.

This is a continuing series of articles on how to write a Business Plan or Information Memorandum to raise capital, Part 11 discusses the business plan content specifically ‘Finance Required and it’s Application’.

Finance Required and it’s Application

The preparation of detailed financial projections and sensitivity analysis thereon should enable the amount of investment required to be determined. This section of the business plan should include:-

• How much money is required now

• Whether additional finance will be needed in the future if plans are achieved and when this will be required. In some cases where all the finance is not required immediately investment can be made in stages against the achievement of pre-defined targets.

• What the finance required now and at later stages will be used for.

• What proportion of the funds is expected to be raised from debt sources rather than through equity investment.

• Details of current investment in the company, both equity and loan (including bank facilities).

• The percentage of the company that investors are being offered in return for investment.

• An indication of how the investor will realize his investment.

The content of Business Plans will be further covered in subsequent articles by Len McDowall.

© Len McDowall, Integral Capital Group 24th October, 2007

www.integralcapital.com.au

Business cash advances have become an increasingly valuable and necessary working capital financing strategy for most small businesses. As with any complex business financing, it is critical to avoid certain common problems that occur when credit card processing is used to obtain needed short-term cash.

It is not necessary for business owners to experience any of the credit card financing problems described in this article. We are identifying ten key difficulties that can be avoided with credit card processing and working capital business cash advances.

Business owners should not overlook the substantial working capital benefits which will accrue to their business by effectively coordinating credit card factoring and processing. These benefits will increase measurably if a number of common business cash advance problems can be successfully avoided.

One of the most important commercial financing needs for any business is ensuring that short-term cash requirements are successfully met. The use of a viable business cash advance strategy has become an increasingly important small business finance tool for many businesses faced with a potential short-term cash shortfall.

Most merchants can document their recent credit card processing activity. Short-term cash can typically be obtained via a business cash advance based on future sales volume.

Before employing this strategy for business cash advances, businesses should realize that there are several significant problems that they need to anticipate. Ten common credit card receivables problems that business owners should avoid when employing this working capital strategy are highlighted below.

First, many lenders for these services charge up-front fees. This is a transaction cost that can and should be avoided, and with the best programs there will not be any up-front fees.

Second, many lenders will attempt to charge closing costs. Business owners should realize that this is also an unnecessary transaction cost for business cash advances when dealing with a truly reputable provider of working capital financing based on credit card factoring.

Third, a number of business cash advance programs require collateral. This is an unnecessary requirement to be avoided by business owners seeking credit card financing.

Fourth, monthly fixed payments to repay merchant cash advances are imposed by some providers. The preferred approach is to avoid such fixed payment requirements.

Fifth, some lenders will require financial statements and tax returns for all business cash advances. Such additional documentation requirements should only be necessary for larger working capital advances.

Sixth, some providers impose a fixed term for repayment. This requirement to pay off the business cash advance over a fixed term should be avoided.

Seventh, most business cash advance providers require credit scores of at least 680. In today’s difficult economic climate, this can be a challenging requirement. It is feasible to obtain this kind of working capital financing with scores around 500.

Eighth, many programs for working capital business cash advances require that a business have at least two years of operating history to qualify. While many business owners can meet such a requirement, a more practical standard for newer businesses is a minimum of one year in business.

Ninth, many providers will require up to 24 months of documented credit card sales of $25,000 or more. A more practical possibility for business owners will involve a transaction history with six months of $5,000 or more.

Tenth, for merchants needing larger business cash advances, it is important to know that many programs are limited to a maximum of $25,000 to $50,000. Providers that are better capitalized for this business finance strategy will be able to accommodate an advance of $300,000 and higher.

Can all ten credit card finance problems discussed above be avoided? There are indeed viable credit card receivables programs which avoid all of the obstacles described.

It is not likely that all ten of the obstacles described above will be pertinent for all small business owners. Business borrowers are likely to experience several of these problems if they are considering a business cash advance that uses credit card factoring and credit card processing. For any business owner considering this approach to working capital financing, please remember that it is not necessary to accept any of the ten problems described in order to obtain business cash advances based on future sales.