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Unbiased Financial Information Provided by Financial Finesse

This is one time when 13 could be your lucky number. Following are 13 places you might find financing for your small business, including five often-overlooked alternatives:

1. Personal Assets

One way to fund your business is to raid your own piggy bank, which could include personal savings, the equity in your home, or the cash value of a life insurance policy. The upside to using personal assets is that the money has no strings attached to it, and it's generally less expensive than other financing options. The downside is that you could lose everything.

2. Friends and Family

This can be a great place to find both money and moral support. Aunt Martha gives you $500 and a hug, Dad writes you a check for $1000, and your best friend kicks in a used computer. Be sure to distinguish between gifts, loans and equity investments up front to avoid squabbles later. It's also wise to put any terms and conditions in writing.

3. Credit Cards

It's no wonder that many small businesses have been financed by credit cards. They're easy to get, easy to use, and don't ask for a piece of your business or try to give you advice like your brother-in-law does. However, with rates on some cards topping 18 percent, plastic can be a very expensive source of money if you have to carry a balance.

4. Small Business Administration (SBA):

The SBA offers loan programs to suit a wide variety of small business needs. They don't actually lend money; rather, they guarantee a big part of the loans made by participating lenders. Because the SBA is a government agency, many small businesses are able to obtain loans for which they wouldn't otherwise qualify. During its 50 year history, the Small Business Administration has helped thousands of small businesses get more than 20 million loans.

5. Credit Union and Banks

If your business is too risky for a traditional business loan, the credit union or bank might be able to work out an SBA-guaranteed loan. You might also be able to secure a home equity loan or a personal line of credit to use for your business. The upside to these loans is that they can be less expensive than credit cards, and they generally don't get involved in the day-to-day management of your business.

6. Small Business Investment Companies (SBICs)

Looking for financing in the $250,000 to $5 million range? SBICs are public venture capital firms licensed by the SBA to provide long-term funding to small businesses that ordinarily wouldn't qualify for other loans or private venture capital. (Companies like America Online, Outback Steakhouse and Federal Express received some of their early funding from SBICs.) SBICs do get involved in the management of the companies they invest in, but they're prohibited from taking control.

7. Venture Capitalists (VCs)

These are wealthy investors or groups of investors that trade their cash and expertise for an equity stake in the businesses they fund. VCs may be a source of capital for you if you have a very promising business plan and anticipate explosive growth. They're hoping to strike it rich by finding the next Microsoft. VCs usually want to be involved in the day-to-day affairs of the business, sometimes insisting on having their own management staff in place.

8. Angels

"Angels" are wealthy private individuals or groups that either loan money to businesses or take an equity stake in the businesses they fund. Some invest big bucks in companies with excellent payoff potential. Others extend a helping hand to small town start-ups that might enhance the community. Angel investors have earned saintly reputations by considering factors besides potential returns on investment when evaluating applicants. helps entrepreneurs search for seed and venture capital financing via its Web site.

And now, the five often-overlooked financing alternatives:

9. Leasing

If you need business equipment, leasing could be the best way to get it. Equipment manufacturers, retailers and credit unions or banks are all potential sources of lease deals.

10. Trade Credit

Negotiating favorable terms with your suppliers can help free up cash. You may land 30- to 60-day payment terms or even work out a consignment agreement where you don't have to pay for supplies until you sell products. The upside to trade credit is that it's often readily available if you ask. The downside is the cost. You may lose early payment discounts or pay higher prices for goods to compensate for the better terms.

11. Barter

If you need supplies or services but you don't have the cash to pay for them, you may be able to barter for them. When you barter, you trade your commodities or services for another business's commodities or services. The upside to bartering is that you get what you need without using cash, and you develop a customer for your products or services. The downside is that you may limit your options for supplies and services to less desirable providers.

12. Accounts Receivable Management

Increase your available cash by speeding up the collection of accounts receivable. Here are some ways to do that:

  • Request prepayment or a down payment.
  • Bill immediately.
  • Offer incentives for prepayment or quick payment. For example, you might offer a 2 percent discount for invoices paid within 10 days of billing.

13. Factoring

You have plenty of creditworthy receivables but you need cash now. If this is your plight you might benefit from "factoring," or having someone purchase your business accounts receivable at a discount. There are many firms that factor. The upside to factoring is the quick access to the money you've earned. The downside is that, since you give up a percentage of your billings, factoring can be expensive.

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