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Commercial financing is needed, not only during the start up phase, but also during the development, operating and growth phase. Let us take a look at the financing required during these two phases.

Pioneer Phase or Start Up Phase

Seed Capitalists: Seed capital is usually provided by friends and family members of an entrepreneur. This funding is necessary for activities like market research in order to test the feasibility of the business venture. The amount of seed capital is usually small.

Angel Investors: A business can also be funded during the start up phase by angel investors. Angel investors are affluent people who finance a business for reasons best known to them. In other words return on investment or ROI may not be the sole criteria for funding. Angel investors may not demand participation rights in the business and they generally provide finances on a small scale.

Venture Capitalists: Venture capital is provided by institutional investors like banks, hedge funds and pension funds, who believe that the enterprise is capable of generating long term profits. Venture capitalists usually come into the picture after the business has established a few basic operations. Since venture capitalists invest other people’s money, they are very particular about the return on investment (ROI). Moreover, they demand participation rights in the form of preferred stock, and they may also be a part of the Board of Directors.

Development, Operating and Growth Phase

Commercial Construction and Real Estate Financing: Banks, credit unions and other lending institutions provide commercial construction loans. US Small Business Administration loans (SBA loans) are also available for small entrepreneurial ventures. Depending on the needs of the business, an entrepreneur can avail of acquisition and development loans, bridge loans, mini-perm loans, take-out loans, joint venture loans and loans for purchasing real estate . These loans supplement loans provided by venture capitalists and angel investors.

Asset Sale Leaseback: Asset sale leaseback is common in case of real estate. In this case the entrepreneur sells an asset only to rent it back from the buyer. The main reason for asset sale leaseback is to remove the asset from the balance sheet of a company while retaining its use. Asset sale leaseback is undertaken for accounting and tax purposes.

Leasing Equipment: Generally buying equipment does not pose a problem even if the business does not have adequate finance. This is because the equipment functions as collateral against which a business borrows money for purchasing the same. However, start ups prefer leasing equipment. The business is required to make monthly payments towards the rent of leased equipment. At the end of the leasing period start ups have the choice of either buying the equipment or continue leasing it.

Invoice Factoring: Many times a business uses invoice factoring in order to convert its accounts receivables to cash so that it can meet its expenses in case it encounters delay in receiving payments from the customer for services rendered. In case of invoice factoring, the business sells its invoice to a third party and receives up to 80% of the value of the invoice. Once the customer pays for the services rendered, the business obtains the remaining value of the invoice less the amount of fee charged by the third party. Read the rest of this entry »

Businesses have the option of consolidating business credit card debts and other obligations. A business loan or a line of credit can be accessed in order to manage the cash flow situation, purchase short term assets, or consolidate debts. The loan or the line of credit is generally secured. Refinancing, which is the process of paying off a secured loan by opting for another loan, usually of the same size using the same property as a collateral, may also be considered as an alternative to consolidation. If debt consolidation and refinancing do not yield the desired results, the company may be forced to file for Chapter 11 bankruptcy protection. Reorganization may not be a bad option for large companies, but small companies should avoid filing bankruptcy since the chances of recovery are slim.

Typically, small business can access Small Business Administration Loans (SBA Loans) and lines of credit that can be used for a variety of purposes, including debt consolidation. The SBA 7(a) Term Loan is appropriate for small business interested in consolidating debts.

Small Business Debt Consolidation Loans

SBA offers many versions of the 7(a) loan to serve the various needs of small businesses. Business firms desirous of availing SBA 7(a) Term Loans should meet the size and type criteria, demonstrate the ability to repay the loan, should operate with profit motive, and meet other requirements as specified by the 7(a) loan program.

A SBA 7(a) Term Loan offers added flexibility to small businesses, by the way of longer repayment terms and lower down payments as compared to other types of business financing. Hence, it is appropriate for consolidating short term debts. These 7(a) loans are provided by lenders who choose to participate in the SBA 7(a) loan guarantee program. This program ensures that the loans are guaranteed up to 85 percent of their value, thus protecting the lender against the risk of default. Both banks and non-bank lenders can participate in this program. The participating lenders structure the loans as per SBA requirements, so that the latter agrees to guarantee a portion of the loan against default. Since this loan is backed by a SBA guarantee, businesses can access a large amount of funds for a longer period of time while making less monthly repayments. The interest rates on SBA guaranteed loans are negotiated between the borrower and lender and cannot exceed the pre-determined cap. Read the rest of this entry »

Many people are doing their own business now.Obviously,there are many advantages if you choose to be a boss.For example,you can make more money.Compared with working in a factory,it is more free .Of course,it means that you will have more time to enjoy the life.

You need to know how to register a company when you finally make up the decision to start your own business.In fact,many people are not good at that because it is very complex.That is why I strongly recommend an agent to you.The name of the agent is Wisteria Formations.You can consult its website by the domain of wisteriaformations.co.uk.It is one of the leading UK Company Formations agents and it is part of Wisteria Chartered Accountants so you can be safe in the knowledge that their formations service is quick, reliable and trustworthy.In a word,it is professional in providing Company Registration.

Ok,that is all.Just start your business now!

     Banks
     A bank is a financial institution which is licensed by a government, and plays the important role in lending money. They also act as important players in financial markets and offer financial services like investment funds. Besides the credit cards provided by banks, which can be used for cash advances, many banks offer a variety of consumer credit services like loans with or without collateral, for major purchases such as automobiles and home mortgages. They also provide credits for taking a vacation, investing in a business, paying off another loan, or a myriad of other purposes. These credits can be paid back to the bank in the form of installments. However, while giving credits, the banks are rather selective and look out for individuals and businesses with established credit histories.

     Brokerage Firms
     A brokerage firm deals in trading of stocks, and execute the purchase or sales of it. They are a useful source of consumer credits. The provision is for investors who have securities on deposit in a margin account and the maximum amount that can be used as credit, depends upon the market value of consumer’s securities. Sometimes an additional collateral is required from the consumer’s side, if the value of securities in the account declines. Money borrowed against securities can be used for any of the purposes including investment in a business, or payment of another loan.

     Credit Unions Read the rest of this entry »

     The employers can make matching or non-elective contributions to the 401(k) plan on behalf of employees, and may choose to add a profit-sharing feature to the plan. Since this is a qualified plan, the employers are allowed to deduct their contribution for each participant before calculating taxes. Contributions and earnings accrue on a tax-deferred basis until they are withdrawn. To know more about 401(k) contribution limits, one may refer to the article on 401K Contribution Limits.

     Distribution of elective deferrals before the age of 59½ will result in the borrower incurring a penalty of 10 percent additional tax, unless the employee dies, becomes disabled, or faces hardships. Early distributions are also allowed if the plan is terminated.

     Borrowing Against 401(k)

     The plan document will specify if one is permitted to borrow against 401(k). Most 401(k) plans allow the borrower to avail a loan that is equal to 50 percent of the vested account balance. The maximum amount of loan that can be procured cannot exceed $50,000. Moreover, it has to be repaid within a period of 5 years, unless the loan was for the sake of buying the borrower’s primary residence, in which case, the repayment period is usually 10 to 30 years. Read the rest of this entry »