Every business needs money at some point in its operations. The key to your success is matching your current or future financing needs to the right funding strategy. It is essential to choose the right type of financing depending on the type of business you have, the stage it’s in, and your resources. Without these insights you could face a frustrating and stressful experience by going after the wrong type of funding, when success simply requires a shift in strategy.

The 2 ROI’s

All lenders are motivated by the 2 ROI’s: Return ON Investment (or, “What’s in it for me?”) and Return OF Investment. And as Will Rogers once said, “I am more concerned about the return OF my investment than I am the return ON my investment.” In other words, whether a lender will finance your business and the terms offered, will depend on that lender’s perception of the risk of getting their money back.

Collateralized loans require a business asset that the creditor can exert some control over to ensure repayment. The collateral could be real estate equity, as in mortgages and some types of SBA loans. Equipment or inventory owned by your business can also be used as collateral for the right type of loan. Your Accounts Receivable (money owed to you by your customers) is an asset that can be converted to cash by factoring. Even your cash flow from credit card receipts can be used to obtain financing.

For non collateralized or “unsecured” loans or lines of credit, your ability to pay becomes the primary determinant based on your income, debt to income ratio, your credit score and the history of your business.

Financing Strategy

To create the most successful funding strategy for your business, take an inventory of your business assets and your creditworthiness. Ask yourself:

1) Does your business own real estate? Usually at least 50% or more of that equity can be converted to cash through a conventional second mortgage or some types of SBA loans.

2) Are you purchasing new equipment or inventory, or do you have equipment and inventory that you use for generating income? If so, equipment leasing is a potentially good option for you.

3) Do you have large accounts receivable and need to cover the gap between billing and getting paid. A factoring company could be the perfect solution. However, be careful. The factoring terms can be complex and could end up costing you enormous rates of interest.

4) Do you take credit cards for payment and have receipts of $10,000 or more? These receipts can be used as collateral for a loan, and will be used to pay back the lender.

5) For unsecured loans, answering yes to the following three questions might make you a great candidate for an unsecured business line of credit.

a. Do you have a credit score above 680?
b. Do you have a business history of 2 years or more?
c. Is your Debt to income ratio 25% or lower?

To Find out how you can qualify click here.