Best Practice: Before applying for a finance company loan, have a good credit score and a good business plan to show business success and loan repayment.
Today’s Article: Access to Capital – Finance Company
Another source of capital is from a finance company. These lenders take on higher risk commercial loans than banks. Examples of where a business may go to a finance company are: high debt-to-worth ratio with a strong cash flow, high-growth and needs for higher loan ceiling, or credit history has some issues.
Advantages of a Financial Company Loan
1. Open to start-up and existing businesses
2. Access to collateral backed capital
3. Interest in investing locally
4. Debt (loan) source of money may be at a lower rate of interest than angel capital
5. Have a structured loan payback period over a number of years.
6. Interest paid on the loan is tax deductible
7. Potential future funding
Disadvantages of a Finance Company Loan
1. Debt that a business has to repay – creates more overhead in your business
2. Borrowed money is at a higher rate of interest than a traditional bank loan
3. Loss of collateral if the loan is not repaid
4. Applicant needs to have good credit and requires running a credit report
5. An outside lender is now involved in your company – choose wisely
6. Can take time to secure
Sources of Finance Companies
The Small Business Investment Company (SBIC) Program works with private investment funds licensed as SBICs to provide growth capital to U.S. small businesses. SBIC’s are private, profit-seeking investment companies that make independent investment decisions.
Sources of SBIC Firms: Click Here
The National Association of Development Companies (NADCO)
NADCO is the trade association of SBA Certified Development Companies (CDCs) and other lenders delivering SBA loans and financing for small businesses. The SBA Real Estate Advantage Loan (REAL or 504 Loan) is available at 10% down with 20- and 10-year fixed interest rates. It is sometimes called “the best kept secret in small business finance” — enabling businesses to purchase and/or renovate capital assets including land, buildings and equipment, as well as positioning themselves for other types of credit.
CLICK HERE to search 504 lenders (CDCs) in your region.
Action Step: If you cannot qualify for a standard bank or microloan, a finance company may be an option. Research local finance companies in your area for the best one to work with.
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