There is no doubt that the financial crisis and the resulting credit crunch have made it harder than ever to finance small businesses and raise capital. This is especially true for fast-growing companies, which tend to consume more resources to fuel their growth. If they are not careful, they can literally eradicate themselves from the business.
Small Business Finance
In the midst of all the pessimism, however, it is important to keep one thing in mind: there are still options available to finance small businesses. It is simply a matter of knowing where to look and how to prepare.
Where to look
There are three main sources that can be used to obtain financing for small businesses:
Commercial banks: they are the first source in which most owners think when they think about financing small businesses. Banks lend money that must be repaid with interest and, in general, is guaranteed by a guarantee promised by the company in case it can not pay the loan.
On the positive side, debt is relatively cheap, especially in the current context of low interest rates. Community banks are often a good place to start looking for finance for small businesses today, as they are generally in better financial condition than big banks. If you visit a large bank, be sure to talk to someone in the bank area that focuses on loans and loans to small businesses.
Keep in mind that more diligence and transparency on the part of small businesses is needed to maintain a loan relationship in the current credit environment. Most banks have significantly expanded their reporting and record keeping obligations and are closely monitoring guarantees to ensure that companies can pay the required amount.
Venture capital companies: unlike banks, which lend money and pay interest, venture capital firms are investors who receive shares owned by the companies in which they invest. This type of financing for small businesses is known as equity financing. Private equity companies and angel investors are specialized types of venture capital companies.
While capital financing should not be repaid as a bank loan, it can end up costing much more in the long run.