A Different Kind of Commercial Loan Financing That Can Save Your Small Business

Even as the need for business loans is on the rise, the LA Times reports that many bank are unable to offer commercial loan financing. This leaves many small business owners at the edge, hunting for a line of business loan financing to tide them over in the slow economy.

Banks have always traditionally been difficult to get commercial loans financing from, but now it may have gotten even more difficult. Banks have extraordinarily little funding available to offer customers business loan financing; much of the funding vanished during the banking crisis of the last few years.

The mismanagement that caused the banking crisis and the resulting economic meltdown, are also responsible for the slow economy that has caused a record number of small business owners to seek out commercial loan financing in the first place.

For a short while bank’s were able to use government bailout money to provide small business commercial lending financing and relief, but as an LA Times’ article reported in July, these funds have now been used up.

This left many small business owners out in the cold and looking for creative ways to keep their small business alive. Many have decided to turn away from big banks and government bailouts and look to the private sector for a solution.

Commercial Loan Financing and Lending Companies

When the banks stopped lending, it left a need for commercial loans that private companies have been able to fill. These private lending companies specialize in alternatives to the limited commercial loan financing offered by traditional banks.

Because private lending companies operate under a different financial system than the one used by banks, most lending companies did not participate in the bad lending practices that banks did when they caused the economic meltdown. As a result, lending companies were not hurt by the banking collapse and have been able to continue providing commercial loans and financing, even as many large banks closed their doors or turn away business owners in need of a loan.

Lending companies also offer a wider selection of loan and financing programs than a traditional bank. These include: loans for business owners with poor credit, merchant advances based off of credit card sales, factoring on account receivables, leasing and more.

Business owners should shop carefully when choosing a lending company, as some will charge more expensive fees than others. Select a company with a good history and one that has access to many sources of funding, because they will often offer you the best rate.

Getting Financing For Your Low Cost Franchise

A low cost franchise may be priced so low that a lending institution won’t consider a business loan for it. In some cases, financing isn’t necessary with a low cost franchise because the franchisee has enough in savings to cover it. But in other cases, some level of financing is needed. There are many places to find that financing, from the conventional to the less-than-conventional.

One way to get financing for a low cost franchise is to get a home equity loan or line of credit. This can be done in smaller amounts than most business loans, and it provides one important benefit to homeowners. The interest on a home equity loan is tax deductible. This gives you more money at the end of the year that can be put back into your business if you choose. This does present some risk, so many homeowners choose not to use their home as collateral. However, if the amount you need is small, too small for a business loan, a home equity loan may simply provide you with a quick way to get the money together without presenting much risk to your equity.

Credit cards can often be used to finance a low cost franchise by supplying the borrower with either the full amount of the franchise costs or by supplementing the money you already have in order to make up whatever is lacking. Most credit cards can be used to obtain a cash advance on the credit line, and this can be used to supplement the money you are using to finance your franchise.

Some franchises offer their own financing programs, even if the franchise itself is a low-cost opportunity. This is increasingly becoming an option as the recession has made it more difficult to get bank loans for financing. A franchise opportunity that offers financing to new owners will be more attractive to potential franchise owners, giving companies a vested interest in creating these programs.

Some new business owners finance their businesses by cashing out their 401(k) or an IRA. Depending on your age, you may have to pay penalties to use this money, but access to it is often easier than going through a bank for financing. Other ways to raise money for franchise expenses include selling something to pay for the fees, such as trading in an expensive car for a less expensive one, selling a timeshare or otherwise raising funds from your existing assets.

If you don’t want to access any of these financing methods and your chosen franchise company doesn’t offer any financing, there is also the option of taking on a partner or seeking out venture capital companies. Choosing to take on a partner may mean that your profits are cut in half, but it can also mean less risk and quick financing for your low cost franchise. Venture capitalists have the same advantages and disadvantages, though they generally ask little in the way of actual participation in the business. From all of these methods, virtually any potential franchise owner can find the best method of financing that dream.