I would like you to choose two methods of debt financing that you see your business using to help finance their business. Explain how each method is working satisfy some part of the funding needs.
Then tell me how you might set the debt up better to the firm’s best advantage. To help you with the second part you might want to refer to the article “Choosing Between Debt and Equity Financing” at the following link – HYPERLINK “http://www.entrepreneur.com/article/159518″http://… .
Finally choose one of the following methods of debt financing that you can see might help your business finance their asset needs in the future and tell me why.
SBA loans: The SBA backs various types of small-business loans made through local banks and agencies. These loans can be used to buy equipment, inventory, furniture, supplies and more. For information on SBA-backed loans, visit HYPERLINK “http://www.sba.gov/financing/sbaloan/snapshot.html” www.sba.gov/financing/sbaloan/snapshot.html.
Line-of-credit loans: These short-term loans let you access a specified amount of money that’s deposited into your business checking account on an as-needed basis. You pay interest on the amount that’s loaned to you. Line-of-credit loans can be used to buy inventory and pay operating costs for working capital, among other things, but not to buy real estate or equipment.
Revolving lines of credit: When a lender offers a certain amount of money to a borrower and allows the same amount to be borrowed again upon repayment, it’s a revolving line of credit. With a line of credit the customer usually pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customer’s current cash flow needs.
Accounts Receivable Factoring: Accounts receivable serve as collateral for short-term working capital loans that you can obtain fast and cost effectively. Factoring is a transaction in which a business sells its accounts receivable, or invoices, to a third party commercial financial company, also known as a “factor.” This is done so that the business can receive cash more quickly than it would by waiting 30 to 60 days for a customer payment. Factoring is sometimes called “accounts receivable financing.” Factoring is not a loan. No debt is assumed by factoring. The funds are unrestricted, providing a company more flexibility than with a traditional bank loan.
Merchant Account Receivable Cash Advance: Up to a $50,000 advance against regular occurring monthly merchant credit receipts. As more and more businesses opened merchant accounts to accept credit cards as a form of payment, financial pioneers, such as Consolidated Funding, Inc., were then able to start extending business cash advances based on the cash flow passing through those merchant accounts. Your monthly credit card sales will determine the amount of your business cash advance, and your personal comfort level will be a substantial factor in setting your repayment schedule
Equipment Financing: Loans to purchase equipment, with the equipment to be used as the collateral on the loan. Arrangements in which (a) the purpose of the financing is to make possible the acquisition by business enterprises, including farms, of income producing equipment, (b) the financing agency retains title to, or holds a lien on, the equipment acquired, and (c) the purchaser contracts to pay off the obligation on an instalment basis.
Equipment Leasing: An easier way to find financing for your equipment needs and obtain tax benefits at the same time. These days, just about anything can be leased–from computers and heavy machinery to complete offices. The kind of business you’re in and the type of equipment you’re considering are major factors in determining whether to lease or buy. If you’re just starting out and only need one computer, for instance, it probably makes more sense to buy. On the other hand, if you’re opening an office that will have several employees and require a dozen computers, you may want to look into leasing.
Franchise Start-up Loan: Specialized financing reserved for the franchisees of recognized, typically nationally known, franchises. In some instances the franchise itself will extend financing to you. Some companies, like 7- Eleven, actually build the store for new franchisees and lease the location to you, meaning you incur minimal startup costs and the transaction is handled directly between you and the franchisor. Others, like Subway may buy back locations from existing franchisees and then sell them to you as a new location, meaning you’ll be handed an established store, sometimes with existing employees and inventory.
Loans from friends and family: Money borrowed from friends and family can come with the best low-interest repayment plan you’ll ever get. Borrowing from loved ones, however, carries risk. Set up a repayment schedule in writing, and stick to it so Thanksgiving dinner doesn’t become a family battle ground.