Lenders favor open, honest applicants.
The latter occurs with increasing frequency when the economy is sluggish, forcing many entrepreneurs to investigate debt financing.
Some of the most common types of debt financing available to the entrepreneur include demand loans, lines of credit, bridge loans, conditional sales purchases and floor financing.
A demand loan is usually a short-term loan with no set repayment schedule. It is payable on demand by the creditor.
A line of credit provided by a bank supports the day-to-day activities of a business. Interest is only paid on any outstanding balance. The line of credit is usually secured by fixed assets, inventory or receivables.
A bridge loan is used as a temporary means to carry a company during its start-up phase or until long-term funds such as grants or other loans can be secured.
Conditional sales purchases are often offered by equipment manufacturers. The purchaser takes possession of the equipment after making a down payment, but the equipment remains the property of the manufacturer until the bill is paid in full.
Floor financing allows a business to carry large volumes of product for sale. The lender maintains ownership until the borrower has sold the product and received payment.
Additional methods of financing include leasing, letters of credit, accounts receivable financing, factoring, inventory financing and trade credit.
Financing can also be supplied by venture capitalists, who provide start-up capital, working capital for expansions, or bridge capital for companies which are preparing for a public offering within 12-month's time.
But venture capital is not for the faint of heart.
Because venture capitalists demand a high rate of growth from the companies they finance - as much as 10-fold growth in five years - they scrutinize every facet of the operation. In addition, most charge a higher rate of interest than do chartered banks.
Venture capitalists tend to prefer operating companies, since the failure rate for new companies is especially high.
In some cases, the venture capitalist protects his investment by hiring a senior executive to help run the operation.
No matter where you go for financing, there are simple rules to follow when applying for financial assistance.
First, be certain you know what type of financing your company needs before you go to the bank or a venture capitalist.
Second, take an honest look at your operation and address any weaknesses before you apply for financing. Financial institutions will examine your operation to make sure it has an experienced and effective management, modern technology and a sound marketing program.
When you make an application for funding, experts advise that you take the following:
* a completed general information form
* balance sheets
* profit and loss statements
* cash flow projections
* a list of accounts receivable
* a list of accounts payable
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|Title Annotation:||Supplement: Small Business Survival Strategies|
|Publication:||Northern Ontario Business|
|Date:||Apr 1, 1992|
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