Business Loans from Friends and Family

If this is a realistic opportunity, it should be considered. Traditionally, this source of working capital is more expensive than bank financing, but does not usually carry the collateral or personal guarantee requirements.  There are also significant “non-economic” considerations that need to be weighed carefully. 

Small Business Loans from Banks – Up to 92% Rejected? 

Small business lending is an analysis of risk and return on behalf of the bank.  Studies show that up to 92% of small business bank loans are declined by banks. By requiring extensive documentation along with collateral coverage of 2:1 or greater and/or personal guarantees for the loan amount, the bank can significantly reduce your risk of loss and therefore the cost associated with making a bank loan. These requirements, which usually include 2-3 years of both business and personal tax returns as well as a business plan and “use of funds report” in addition to extensive and time-consuming loan applications, often prove frustrating for business owners. Because of these factors, traditional bank loan approvals are very difficult to obtain, but can be the least expensive form of business working capital and should be pursued if cost of capital is the most important consideration. 

Business Venture Capital Funding

Given the size of annual revenues and the amount of financing required to fund (business purpose), venture capital funding is not a reasonable option.  Additionally, venture money will usually require some equity participation as well as some management influence. This loss of equity ownership and potential control will qualify this potential source of capital as undesirable and very expensive. Much like small business loans, getting approved for financing is very difficult.  In order to get approved, most will require that business owners provide collateral (2:1 coverage) to cover the financing, be in business for at least 2 years, have excellent credit and borrow less than $100,000. Additional documentation requirements include a comprehensive business plan, audited personal/business tax returns for 2-3 years, detailed financial statements, personal guarantee regardless of legal entity and an application fee and closing costs. 

The Business Cash Advance Option

A “business cash advance” may be more a little more costly than a bank loan if interest costs were the only consideration.  However, business cash advances are generally easy to qualify for due to their lack of stringent approval requirements. When weighed against the opportunity cost (loss) of not having access to capital due to being declined with a traditional small business loan or the more expensive alternative of venture funding, a Business Cash Advance can quickly become a favored option.  For more information, contact CAE at 1-877-865-7744 – www.CashAdvanceExchange.com