Home Equity Line of Credit
Oftentimes for people starting business,
access to debt financing is difficult. There are
other sources of financing you can explore. For
example, if you have equity in your home, then
you could consider a home equity line of credit.
You may be able to get funds quicker and at a
competitive (or better) rate. The decision to
take money out of your home to finance the start
of a business should not be made lightly. You
are putting what is likely to be your most valuable
asset on the line. Your business plan should give
you confidence that you can pay “yourself”
back. For more information on using a home equity
line to finance your business, check this article
out in Entrepreneur Magazine.
http://www.entrepreneur.com/Your_Business/YB_SegArticle/0,4621,302587,00.html
Credit Cards
You may also be able to finance the start
up of your business using credit cards, but don’t
take this approach if you have any doubt that
you will be able to pay them off on time. Those
enticing introductory rates offered through the
mail quickly disappear if you are even one day
late with a payment. Check out this article in
Inc. Magazine about using credit cards to start
your business.
http://www.inc.com/articles/start_biz/866.html
Credit cards can also be used
to finance working capital needs in an existing
business. The same rules apply – be sure
your cash flow supports timely repayment.
Factoring
If you offer credit terms to your customers,
you can manage your cash flow while waiting for
their payment through factoring. The financing
institution purchases the accounts receivable
of a business and assumes responsibility for collections.
If you factor, your business essentially is paid
cash on delivery, while your customers get the
credit terms they require. This is somewhat different
from accounts receivable financing. It is not
really “lending”. The factor purchases
accounts receivable for their value, usually advancing
60 to 80% of their worth when the company ships
the goods. The company is paid the remainder –
minus the factor’s fees and interest charges
– when the customer pays. The factor assumes
all of the risk of collecting, and therefore charges
a fee to compensate for this risk
