Tweet

Taking debt now does not mean it is forever

Guest post by: Joseph Lizio

Article Overview: Banks turning you down but you don’t want to use those seemingly high priced alternative financing companies to get capital for your business? There are ways to use these products (for a short period) to get what your business wants and needs right now.

Taking debt now does not mean it is forever

There has always been a lending or financing gap for start-ups and small businesses (companies in business under three years). And, with banks still holding back on lending, this funding gap has really widened over the last two years. However, there have also been many alternative financing companies that have stepped in to fill this gap. These companies, unlike banks, usually specialize in certain types of small business funding like accounts receivable factoring, business cash advances or equipment loans and leases. While these products can be a little more expensive than traditional lenders who spread their overheads across many different product lines or have cheaper costs of funds, these products are usually the only viable option for many new, growing businesses, in both bad and good economies.

I hear entrepreneurs complain constantly about the rates of interest or the fees for these products. And, I always respond the same way:

First, these products may seem expensive on the surface but they really are not that much more expensive than bank products when all costs are analyzed. Banks also charge fees as well as high interest rates but also require intensive financial reporting. Keep this in mind, these organizations compete against each other - thus their products, overall, are priced very competitively. Further, if a bank turns your business down, that usually means your business offers more risk - more risk that these alternative financiers will expect to be compensated for. Pay a little more now for what you need through these alternative sources or get nothing from the banks - the choice is yours.

Second, along the same lines, if the banks are turning you and your business down, what other options do you have to obtain capital for your growing business? If the growth opportunity is worth taking on debt in the first place - then the business must do what it has to do to grasp these opportunities - now. When these opportunities start paying off then think about ways of improving these facilities through re-finance or take out (getting a new loan or facility to pay off higher costs loans or facilities).

But, keep this in mind as well. Many of these higher cost products are not meant to be long-term financing vehicles. Thus, they should not last forever or be relied on for an extended period. If you take the higher cost product now and leverage those funds into new business and company growth, in a very short time your business should be eligible for the other, cheaper financing products from your bank. Think of these alternative financing options as a means to a result - result meaning your business success or as a way to fill this lending gap until your business is no longer affect by the gap.

Financing your small business, other than through commercial property financing, is not like a residential (home) mortgage loans for 30 plus years or even like auto loans (usually 5 or more years). These products should only be used for a very short-term period (under one year) to either get your business started, to take advantage of new opportunities for growth. Thus, regardless if your pay them off quickly or re-finance them through other means when your business is strong - in either case - these financial options should not last forever.

Related Articles
  FDCPA Laws
  Beware of Charged off Debts!
  Know your Rights in the FDCPA
  The Easiest Journey in Business Education
  FDCPA Assures Rights of the Consumer
  IS IT TIME TO CUT UP YOUR CREDIT CARD?
  Debt Consolidation and Refinancing – Is it Right for You?
  How Does Debt Settlement Affect My Credit?
  Tips to Take Control of Credit Card Debt
  Debt Collectors should follow the FDCPA Laws
  How Does Debt Consolidation Affect Credit?
  Credit Alliance Group has discovered that Banks and Collectors Have a New Twist on the Old Bait & Switch Tactic
  Debt Relief Facts
  What is Debt Collection Harassment?
  Debt Collectors Look for a Victim all the Time
  Credit Alliance Group understands that every dollar counts in paying off your credit card debt
  The Irony of “Risk” in the Markets
  Borrowers struggle to resuscitate their overburdened properties
  4 Tips to manage your business debt in a better way
  Good Debt, Bad Debt: Know the difference

Article Tags: bank, capital, debt, fees, financing, interest, small business



Related Forum Posts
Don’t get into Debt trap - Don't go into debt unless you're very sure (not a gamble) that in the process of going into debt that you will make up the difference you will have to pay in interest later on! Going into debt can sometime be a good tool for getting something for your business or furthering your education when you don't have any money, but it's also a way for you to take a step back when maybe you don't need the extra money right away.
Re: The Top 50 Get Out of Debt Blogs To Watch In 2009 - [quote="claoudi":3b6lvtrt]What is the difference between an overdraft and debt? My husband has run almost £2000 overdraft and he says its not debt just an overdraft, nothing to worry about. I am worried sick and I still see it as debt! He had just finished paying a massive debt last year which took him over 10 years to pay off. Now he's started a small one without telling me. I made him promise to tell me if he had any problems with money which he failed to do so.[/quote:3b6lvtrt] I would agree with you that having an overdraft is a debt. In actual fact that overdraft money that has been used is money that is owed to the bank. If at any time the bank decides for some reason to call in that debt, your husband could finish up in some trouble if he is unable to repay it immediately. The best thing that he can do is pay that overdraft off as quickly as possible and then use money that he actually has and keep the overdraft strictly for emergencies. MichelleJ
Re: The Ultimate Linkbaiting Resource - The SEO industry is forever changing and forever increasing in demand. Thanks for the links.
Re: New Video - Should I Get A Job Or Start A Business? - Hi Evan, I was curious to know what you'd suggest and I think you gave excellent advice. Taking a year out to try and start your own business is a great idea. Taking a year out after college is a well established option so I guess it doesn't prejudice your chances of getting a job should you wish to do so later on; it probably improves your chances if you've been getting valuable experience of managing a business and of course, if all goes well, you won't need to find out. Definitely a video for my website. Thanks! David
Re: If you had a million dollars... - My business is very established and I have accumulated debt for equipment etc that I use. I could easily get out of this debt and have nice working capital for half of that amount. Since my work is very affected by the weather and now the economy, it would be nice to have additional working capital. With fulltime employees with families to support - it would be nice to have a cushion to help us all get through the troubling and uncertain economic times. Chris


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Ten Things You Can Do To Be a Better Leader

Qualities of Leadership Part 1

Providing Feedback

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.