Business Financing And Refinancing

Written by: Lilly Cobal

If you have been in the business for quite a while you may be knowing a lot more about financing and refinancing than this information can tell. Financing a business helps you cover the cost of your product, service, employees, furnishing and keep some money aside for your business’s future growth. If your business is not already off the ground, it is crucial that you learn about finding sources for financing. 

Source Of Fund

Obviously, business fund requirements depend on your type of business – whether you are running the business full-time or as a side gig. Financing may not be that essential for someone who is pursuing a hobby. For others, it is a lifeline. There are many sources and resources that you can obtain funds from, such as banks, credit unions, investors, public funding, donations, friends, family and others. Finding the right source is not so hard to do or digest. It is matter of making educated decisions based on your needs and repayment ability. How much money you need, how much money you will spend and when will your business be profitable so you don’t have to rely on financing anymore are all important factors to consider. 

Ideal Financing Company

The type of financier you use is not written in stone. Whoever offers the best rate of interest and flexible repayment plan should be your ideal funding source. Again, many businesses will need or want to do forecast of how much fund they need because they have their pulse set not just on expenses but profit in the future as well. In other words, if you are looking to grow, take into account the financial projections three or five years down the road to begin with. 

Friends And Family

As a business owner, borrow the money or find somebody who is interested in investing in your business. Let us say a wealthy neighbor is very much impressed in the kind of work you do and want to be a part of it. The neighbor can lend you money but under the terms of a loan agreement plus partial ownership of the business that you have been working hard to create and grow. If this scenario suits you, by all means go ahead. If giving away a portion of ownership is not your thing, there are other options for funding your business, such as credit cards, banks and credit unions. 

Credit Cards To The Rescue

In the heyday of credit card use, which was around 2006, the US consumers averaged around $12,000 in credit card debt. This number has been growing since then because of the ease and convenience that the plastic cards provide. You are probably already aware that funding your business with credit cards is a hit or miss depending on your repayment ability and interest rates. Most credit cards charge a hefty interest and fees for non-payment and late payments which can be risky to your financial health. In general, we advise against using credit cards. But if you insist, make sure to shop for the right card carefully. Watch out for teaser rates that can increase all of a sudden after a few months. Many credit card companies shorten grace period when large amount of money is borrowed. Also, shop around for extra benefits, discounts and perks. 

Banks And Credit Unions

Bank loans are incredible when it comes to financing, be it for a house, car, boat and in your case business. However, you can only qualify for a bank loan when you don’t really need it, as the old saying states. The more risky your business is and lower your credit rating shows, the less likely you will get a loan unless your personal and business assets can cover the full amount. Which would lead you to one big question: why do people consider this option more than the rest? Well, banks offer flexibility in terms of loans for preferred customers, even take risks on a few by offering loans at an attractive rate to draw the attention of investors. If you are one of their customers, you may either get a collateral or non-collateral loan. 

Refinancing Terms And Conditions

The good news is, you can always refinance the loan. In other words, if the payment seems expensive, you can reduce the amount and stretch it further over the years. Refinancing can be a great choice if you are tight on a budget and need to save money for unpredictable circumstances. It is also favorable to those who are expanding their business to other areas of their businesses and need additional loans. Bank loans and financing from credit unions are a straightforward matter. There is no demand for ownership which is otherwise abstract and risky. And when you are borrowing loans from banks, you are doing it with appropriate formalities where terms and conditions are clearly defined. 

Money And Time Saver

Refinancing can be a viable option to replace your existing loan or pay off an old debt. The new loan should however improve your finances not cause more financial burden. As mentioned before, you need to find a lender that offers better loan terms. Ideally, you should also be able to pay off your existing debt to the full extent. Sometimes, refinancing can be time-consuming but if selected carefully, the benefits outweigh any drawback. 

There are many ways you can save on refinance charges and interest rates offered by lending institutions. The biggest savings of time and money occurs when you are doing extensive research in finding the best rate for your business needs. When selecting the lender, try to find one that seems interested in providing flexible repayment terms. Avoid the lender who doesn’t want to get involved in learning the nitty-gritty details of what you do. Also, avoid those who cannot explain the terms precisely. Make a list of lenders who can save you money on several matters at one time. For example, in a one-to-one conversation, you should be able to obtain loans for different elements of your business such as equipment, furniture, transportation and materials as one package with one interest rate. And as you bring new elements to the table, ask specifically about the fees for each. Many lenders initiate fee discussion to give you an idea of what to expect, others don’t reveal it until the end. If possible, bring up the subject yourself.

Social Lending Networks

Social lending is another popular way of financing your business. Sometimes it is as simple as posting your money requirement on a website. Lenders then make offers at various interest rates. Most of the social lending networks have been around for only a few years so we cannot endorse any of them as of now. If you want to seriously consider funds from social lending websites, do your research and find out which website is safe and easy to obtain the needed funding. 

Last But Not Least

Your loan documents should be clear. Do not settle for only the summary of the loan. And watch out for hidden expenses and fine prints. Find out if there is a hefty fee for prepayment which you want to avoid at all cost. If there is, this means you will be paying fees for prepaying the loan before the end of the term. Learn as much as you can about the loan process. There are many websites that will let you keep up with specific information that your lender may have missed. 


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