<br/> <br/> The concept that options available for medium-sized business owners come down to selections between traditional financing, invoice factoring companies , or venture capital is the wrong way to consider funding medium-sized business initiatives. Even if the business depends only on debt financing to sustain its capital needs, business owners should look at the financing options accessible to them as a 'portfolio' of investment choices.<br/><br/>One size does not fit all-- two or three sizes don't fit all either.<br/><br/><br/><br/><br/> Many of the Main Street businesses we refer to here will incite growth and fund working capital with borrowed money or cash flow. Fortunately, there are a ton of alternatives readily available. Regrettably, many small business owners consider the selections as an either/or choice to be made. I think it makes good sense to look at financing alternatives that are appropriate to different conditions and how they might work together to help small business owners find the capital they need.<br/><br/>For example, a good relationship with a community banker is very important to the long-term health of a small business. That's not to say an SBA loan or other traditional loan is the best and only answer to the financing requirements of the local dry cleaner or restaurant. Yes, interest rates are lower on a traditional fixed-term loan, but how quickly a small business owner can get access to capital might be challenging with a term loan that takes weeks or months to fund if the small business owner needs the cash today.<br/><br/>And, the elephant in the room is that many Main Street business owners don't have the credit, time in business, or revenues to comply with traditional loan criteria. This is particularly painful for early or idea-phase startups. No history, no product, and no revenues generally mean no loan.<br/><br/>For a business owner who doesn't meet the underwriting demands of a traditional lender, factoring company products can serve to help establish credit while helping the borrower to fill his or her short-term capital needs. Factoring companies have less rigid lending requirements than does the local bank-- but that comes with higher interest rates. Due to higher interest rates, small business owners should review repayment terms of a few months as opposed to a couple of years. Although factoring company financing might be a highly effective tool when used correctly, it can also be very costly if misused.<br/><br/>Many small business owners who do qualify for low-interest term loans still resort factoring company methods as a short-term bridge to a traditional term loan while they anticipate a traditional loan to be funded. If the business owner is trying to take advantage of an opportunity and can't an SBA or other traditional loan to close, the extra interest they pay over the two or three months they wait is well worth almost instant access to capital offered by factoring companies .<br/><br/><br/><br/><br/>When examining the many funding alternatives readily available for small business owners, a few of the questions that should be asked include:.<br/>1. What is the range of terms readily available?<br/>2. Are there any upfront costs?<br/>3. What is the minimum credit score required to obtain the loan?<br/>4. What are the underwriting needs besides my credit score?<br/>5. Just how fast can the loan be funded?<br/>6. Will I require the cash now, or can I sit tight?<br/>7. Do I have the ability to make regular and prompt payments?<br/>A small business owner should manage his or her credit score like a precious asset. In some cases short-term financial choices have long-term outcomes. For example; a business owner that had a pretty good business concept but no collateral, no income, and no credit was distressed and angry that lenders weren't fascinated by his idea and weren't falling all over themselves to offer him money. He wasn't interested in bootstrapping because it would cause him to downsize his growth plans. It wasn't what he would like to hear, but bootstrapping his idea was the only real alternative available and the approach I suggested. Many unbelievably successful companies were launched by an entrepreneur who bootstrapped his way to the top.<br/><br/>What's the best strategy for your Main Street business? There are certainly more than just one and even a mixture of many options-- once size does not fit all.