The Realities of Small Business Financing

A Home Business Article Contributed by G. Uma Bennett

The Realities of Small Business Financing

Most entrepreneurs have encountered the realities of small business financing; they have to use nontraditional sources of capital like credit cards loans from family members, micro loans, and home equity loans for the funds they need to cover operating expenses like advertising and office supplies, one-time expenses include the costs of the start-up, such as the cost of incorporation and fixed asset expenses such as a computer and other equipment.

Banks don't lend to small businesses without two years of solid revenues and in 2001 the average loan of Small Business Administration lenders was $1.3 million.

Benefits of Using Credit Cards for Small Business Financing

Using a business credit card for small business financing has many similarities to a personal credit card: both have credit limits and a minimum payment due each month. But there are more options with a business credit card, for instance you can choose a corporate charge card which gives you higher limits and no interest but also has the obligation of full payment of the balance due every month. Keeping your business cards in your company's name and your personal cards in your own name, helps you keep track of your work-related expenses for tax time and you budget your money easier.

Secure a Bank Loan Through Small Business Financing with Credit Cards

Planning your small business financing by using of your credit cards can save you a lot of money. By using several credit cards, you can leverage your credit limit and buy as much equipment as you need without going through a lengthy red tape process. Guard your credit rating carefully and keep track of your records, after a year or two your credit card usage may prove to banks that you are ready for a small business loan. Use your credit cards as a planning exercise to think about the profit and loss projections that are required in a business plan.

Credit Finesse-the Art of Small Business Financing

Once you make your credit card small business financing plan, add some finesse to it by paying more than the minimum amount due. When you use this strategy you will save a bundle on interest payments; on a $5, 000 balance, you'll end up paying $7, 115 interest over 313 months with the minimum payment. Make payment before the due date and you will avoid late fee charges. Other ways to add leverage to your credit use is to use a credit card that gives you airline miles or rental car discounts or that has a low interest rate forever or a card with a longer grace period.

Getting Small Business Financing from Family Members

Small business financing requests from your relatives is not the same as asking for an advance on your inheritance. To be taken seriously, you have to use a more professional approach. When you ask for a loan, outline terms which include the amount you will repay with monthly installments, at an interest rate pegged to the prime rate. Be prepared to show them your business plan, or at least a provide a presentation that shows what your company does, how you market the business, when you expect to make a profit along with your reasons for not going to a commercial lender.