Going from an employee mindset to self-employment requires some knowledge of finance and your own capacity to tolerate risk and uncertainty. When I worked for someone else, it never occurred to me that customers and sales didn’t always line up in a neat two week period to keep cash flow smooth and continuous in order to make payroll and other expenses. Learning how to cover cash gaps with business loans, so that you can keep your startup business operating, isn’t taught on-the-job or in schools. It only comes through hard-earned business experience. Often, I have found, the choice I make is determined based on my comfort with risk levels, my immediate situation, and the way I operate my business.
Small Business Financing: How To Fund Your Venture
First, though, you have to know what types of financing are out there and the risks associated with each type of lending instrument. You can use a conventional loan from a bank, but in this credit climate, you’ll have to secure this type of loan with an asset. The risk here is that if you default, you’ll lose the asset. If the asset is your primary home, then you’re taking a pretty high level of risk when you put up your home as collateral. If the asset you’re considering as collateral is a boat or a work of art, then the idea of using this asset to leverage growth may be much more appealing, since the loss of such an item may not be as significant, when based on value. Other times, borrowers may choose instead, to apply for credit card offers, do factoring (a loan that is dependent on future sales forecasts for repayment terms), or use some form of unconventional loan. Knowing that conventional loans take time and good credit, you may want to think of other loan options as back up.
If cash flow is threatened and instant funds are needed, you’ll want to know where to turn in a pinch –- before the emergency arises. The way I see it, the more knowledge you have about different financial instruments, the better prepared you’ll be to deal with a financial crisis affecting your business.
Evaluate the Situation Carefully
Every financial decision is different, depending on the circumstances. One day, your 0% balance transfer credit card rate may be at an appealing interest rate level, and the next day it is at 30%, requiring financial moves to be reassessed in light of new circumstances. One day your home equity line of credit is a healthy buffer, the next day, you may find that the account is closed or severely limited. Being proactive about interest rates, about changes in the lending climate, and being aware of how assets are valued helps you to pick the right loan when it comes time to do so. If you’re familiar with the lending environment, you’ll have much more confidence about the financial moves that you’ll need to make in order to help your business move forward.
This guest post is brought to you by Business Loan Option.