Aside from traditional funding sources from SBA loans and venture capital firms, there is a range of other, less traditional financing alternatives available to entrepreneurs.
Real Estate Financing
Many companies are not aware that their real estate is not fully leveraged. Banks prefer to make loans against land because they are more comfortable placing a value on it. Check the real estate section of the Sunday paper to find mortgage brokers in your area.
Equipment Financing
When purchasing expensive capital equipment, a company often has the opportunity to finance the purchase, or enter into a lease. In both cases, money becomes available, and the company gains the ability to use the machinery without sacrificing its cash position.
Many banks and manufacturers are willing to finance the purchase of capital equipment. They will lend your company money against the value of the equipment purchased, holding the equipment as collateral. The downside of this approach is that the loan appears on your balance sheet, affecting your company's leverage and your ability to borrow against the value of the company.
Leasing is an increasingly common method of financing. In this situation, the company never takes title to the equipment. Instead, the leasing company purchases the equipment and leases it to the company for a monthly fee. There are two significant advantages to this arrangement: the company doesn't need to dispose of the equipment at the end of the lease, and the lease is off balance sheet, meaning that since there is no loan, a company's debt load is not affected.
Customer Financing
If your product or service is valuable and difficult to replace, many of your customers may be interested in financing your growth. This can be a risky, time-consuming method of finding financing, but if the proper match is made, both parties can benefit.
Receivable Financing
Short-term revolving financing is provided by factors or receivable lenders. These firms recognize your receivables as a valuable asset, and are usually willing to lend against it, regardless of your company's financial position.
Factors will purchase your receivables (at a discount) and collect the money from your customers directly. For example, if a company sells $500,000 in software to a distributor like Tech Data, a factor might pay $400,000 for the receivable. It is then up to the factor to collect the entire invoice directly from Tech Data.
A receivables lender will loan money against the invoice and hold it as collateral. Once the invoice is paid, your company repays the lender. Check your local yellow pages under "Factors," or the Corporate Finance Sourcebook for firms that offer this service.
Venture Capital Clubs
These clubs bring small investors together with entrepreneurs in search of capital. These small organizations make it easy for a company to speak directly to a motivated lender. The downside is that these are people lending their own personal funds. For a more complete listing of venture capital clubs, contact (preferably by mail): Association of Venture Clubs, 265 E. 100th Street, #300, P.O. Box 3358, Salt Lake City, UT 84110. Phone (801) 364-1100.
Venture capital clubs alphabetized by state
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