How to Get Commercial Financing to Start a Business


In any economic condition, getting commercial financing can be a challenge if you’re looking for funding to start your business. On top of that, the current state of industries makes it even more difficult. Since commercial finance companies like Clopton Capital focus more on your collateral, most of the tips you’ll read are related to that. Here are some ways to get commercial financing for your new business venture:

Factoring

Factoring is a financial strategy wherein assets by a company are sold at a lower price to earn cash right away. This is commonly used by companies that fulfill orders before getting paid and have poor credits. Nevertheless, you’ll spend more on using this method. Businesses that sell their assets ought to pay a certain fee equivalent to a percentage of the total cost.

Loaning from a Bank

For banks such as the Bank of America and J.P Morgan Chase, they’ve allocated more funding for those who plan financial support from commercial financing companies. Nevertheless, in most banks, the standards for lending money have been less lenient.

As stated in the Small Business Chronicle, there are a lot of documents you need to prepare when you apply for a commercial business loan such as accounts receivable and accounts payable, tax returns for 2 or 3 years, and financial statements. Therefore, getting a loan from a bank may assist you.

Being Wary of Using Your Credit Card

Commercial financing companies consider your capability to pay as a basis, so extensive paperwork is required. This includes credit card documents, making it quite risky. When you fail to comply with your scheduled payment, your credit score will go down the drain. As long as you use your credit card responsibly and have a steady cash flow, you won’t have any problems getting commercial financing.

Understanding the risks is also important. Neglecting your loan can make you lose your assets if your loan is ensured. Your credit score can be negatively affected. If it isn’t, your lender can file criminal cases against you.

Checking Your Savings

If you are currently out of a job and contemplating putting up a business, you are enticed to tap into the money you’ve saved for years working. Due to the tax code provisions, you can tap into it without having to pay a penalty as long as you follow the appropriate steps. Although they are complex legally, the steps are simple.

You need to look for someone who has experience with retirement plans to help you with your retirement assets and C corporation set up. All in all, you are investing your retirement benefits and funds. That means if things don’t work out, you might not be able to be approved for commercial financing.

Crowdfunding

Websites such as Kickstarter is an effective and entertaining method to earn money by funding a creative but inexpensive project. First, you determine how much money you’d like to raise for a certain period.

For example, you can set the amount to $1,000 for one month. Your family, friends, colleagues, and other internet users can pledge money by using the site. Since Kickstarter started in the past year, around a thousand projects such as music albums and documentaries have been funded.

However, crowdfunding is not a good idea for long-term funding because the return of investments and cancellation of donations due to taxes is not long term. In spite of this, there are still a lot of people who pledge in crowdfunding sites.

Pledging a Part of Your Savings in the Future

It may sound a bit absurd, but yes, you can have a better shot at commercial financing by pledging some of your earnings. This was done by Saul Garlick, Jon Gosier, and Kjerstin Erickson who were able to earn from Thrust Fund which is a marketplace online. What they did was offer a part of their future earnings and get venture funding that is unassigned. Take caution of the legality since this kind of investment contract may force you to pay.

Attracting a Big Investor

To obtain commercial financing to start a business, you may want to persuade an affluent investor. Being straight to the point and having a clear plan are the same old but effective methods you need to follow. However, the unpredictable and complicated changes in the economy have made this more difficult. Here are some other suggestions to attract an investor:

  • Get a credible and experienced adviser.
  • Make sure to show that you are genuinely passionate about your planned business.
  • Have a solid plan that reflects your marketing and sales knowledge of the industry you want to venture on.
  • Update your potential investor of the new developments in your plans.

Taking an SBA or Small Business Administration Loan

Since banks have become stricter due to losses from credit cards, many have turned to SBA for its guaranteed loans. The funding for SBA’s backup loans has been used up numerous times. Listed below are the requirements you need to qualify:

  • Apply for a bank loan or loan from other institutions.
  • To qualify your business, you need to pass the government’s requirement for the industry of your business.
  • Apply for a loan again from companies that process SBA loans.

Availing of a Microloan

It doesn’t mean that no commercial finance company will take you if you lack collateral, have a poor credit history, or difficulty getting a loan. You can borrow a small amount of loan that can range from $500 up to $35,000. This is called a microloan.

Since they’re small, commercial banks are not very strict in loaning you money. You can visit a microlender which is a non-profit organization that functions differently because it doesn’t have a lot of paperwork needed, has flexible financing criteria, and offers only smaller sizes for loans. Microlenders’ interest rates are a bit higher for their loans compared to banks. Even though that’s the case, this is good for those who are starting with their business.