Evaluating your business financing options? Take the quizzes to find out which is the ideal financing source for your company's needs.
You know you need funding for your business, but you’re not sure which option is best. You could apply for funding from your bank, bring on an investor, borrow from family, or even work with a factoring company. They’re all viable options. However, determining the right choice for you depends largely on your unique situation.
Need a little guidance? Read about all four funding sources below and then take a quick quiz on each one. The quiz will help you determine whether each particular funding source is right for your specific goals and needs.
The bank may be your first stop in your search for funding. Getting business funding from a bank can be a lengthy and complex process. Your bank will likely want several years of tax returns and financial statements, all of which should be prepared by a CPA.
Additionally, they may want to see your business plan and detailed budget. The business will need a strong credit story and each owner will likely need a high credit score. Even after all of that, the decision to approve may simply come down to the underwriter’s subjective feeling about your business. Bank funding may be appealing, but it’s not easy to obtain.
Not sure whether you’ll qualify for a bank loan? Take this bank financing quiz to find out if you meet the lending criteria for most banks.
Another option may be to bring in an investor. A private investor can be a good source of quick cash. The investor also may be more flexible in terms of their requirements. They could be more accepting of storied credit or cash flow troubles.
However, an investor may have other requirements that you won’t find with traditional lenders. For example, the investor will likely have an ownership stake in the business. Are you prepared to give up some of your business’s equity?
Also, the investor may want some say in important business decisions. They may even want full control of the business, depending on how much equity they have. Are you prepared to give up some control or to work for someone else in your business?
An investor could be a good solution, but there are possible drawbacks to consider. Take this investor financing quiz and find out whether an investor is your best source of funding.
For many business owners, family and friends are a common source of capital. That’s especially true for start-ups, who may not have many other options. Your family and friends may be willing to overlook issues that banks or investors would object to, such as credit issues, lack of business history, and even lack of a business plan.
However, taking loans from family and friends can often be more trouble than it’s worth. Your family and friends may not understand the distinction between a lender and an investor, and may feel that they should have input and control in your business. If you take loans from multiple family members, your family get-togethers could devolve into group discussions about your business leadership.
There’s also the issue of repayment. If you fail to repay the loan on-time, or fail to repay it completely, you could forever tarnish your relationships with your family and friends. The loss of family could be much bigger and much more painful than the loss of your business.
Your family and friends could very well be a good source of capital. However, do your research and due diligence before moving forward. If there’s any chance that the agreement could spoil your relationships, you may want to exhaust all other options before you take money from family members.
Still not sure whether to approach your family or friends? Take this family financing quiz to determine whether it’s right for you.
If you don’t qualify for bank lending, don’t want an investor, and don’t want to borrow from family and friends, what funding options are you left with? There’s one other solution that could be right for you.
Factoring is a unique funding solution in which you sell your outstanding invoices to a third-party company, called a factor. The factor advances you a percentage of the invoice balance, usually 80 percent, but sometimes as high as 95 percent. The factor then collects on the invoice from your customer, deducts a small fee, and forwards you the balance.
Perhaps the best part is that the factor isn’t concerned with your credit history. Rather, they’re concerned with your customer’s ability to pay the invoice. If your customers have solid credit and you are issuing invoices with specific payment terms, then factoring could be a good solution for you.
In many cases, a factor can approve your application and get you funded quickly, often in a matter of days.
Also, most reputable factors, like Gateway Commercial Finance, respect your relationships with your customers. Gateway makes your privacy a top priority.
Want to learn more about factoring and whether it’s right for you? Take this factoring financing quiz. Then submit our factoring quote form to get a no-cost, no-commitment quote from one of our funding consultants. We’re here to help you overcome your cash flow challenges.