Funding and financing

How to acquire capital for your business.

Where do funds come from? There are four main sources, according to Lynda Andrian of Southern California Leasing: FDIC-insured banks, Wall Street, private equity firms and marketplace lending (also known as “crowdfunding” for businesses). Types of financing include debt financing, equity financing, equipment financing, SBA loans, accounts receivable financing and marketplace lending/crowdfunding, which generates small amounts of capital from large numbers of individuals. This last technique can generate lots of money, and credit-worthiness isn’t usually much of a factor. But that also usually means a higher interest rate.

• More traditional lenders do monitor your credit-worthiness—both personal and business. Lenders also consider:
  • Your ability to repay the loan
  • Your collateral if that ability starts to falter
  • How “committed” you are to your business
  • Your profitable operating history
  • Whether your profits are increasing as a percentage of sales
  • Your discretionary cash flow

Another factor considered, in somewhat less black and white terms, is the future of your industry. (There aren’t too many manufacturers of buggy whips these days.)