Methods Of Debt Financing Suitable For Small Businesses

If you have a small business and also have a considerable amount of debt with which you are struggling to keep up the pace, there are some easy and simple methods available to you for effective debt management. One such easy method is debt financing. It is an effective strategy which involves borrowing some money from a lender, according to the financial capability, or from any investor having an agreement to pay the entire amount back after a specific time along with some extra payment regarding interest. On the other hand, you can have equity financing in which the investor or lender is allowed to have partial ownership of the company, and therefore you need not pay back the amount borrowed.  Image result for Methods Of Debt Financing Suitable For Small Businesses

Debt Financing Features

Debt financing is the simplest way, and it does not involve any ownership transfer, partial or full. In some debt financing cases, such sum borrowed can be converted into stock but there are no ownership criteria involved at all. Companies that avail debt financing are usually accepting the direct obligation of repaying the fund within a specific tenure along with interest which is also pre-determined. The rate of interest is determined as per the risk involved in the investment of such fund in the company. Therefore, the status of the company, both physical as well as financial, is important in this aspect.

Rate Of Interest Differs

A startup company may be charged a rate of interest which is higher than a company which has been in the market for long and has shown a considerable trend of profit throughout the years. Debt financing is less risky as well as the lenders are paid off even before the owners at the time of liquidation of the business. The lower risk involved also means that the rate of interest is lower as compared to other conventional sources of debt financing including private and public sources.        

Usual Sources Of Finance

The most common and usual sources of debt financing are varied, and you can have your required finance from the private placement of convertible debentures, bonds and shares, bonds for industrial development and several other leveraged buyouts. Among all these, the most common and by far the most popular type of debt financing is in the form of a regular loan. Such loans have further classifications according to their features, and you may come to know of them all by checking for them online.

Evaluating A Business

While evaluating such small business companies for debt financing, there are some primary factors that are taken into consideration. The first thing that a lender wants to assess is the operating history of the company for at least a period of two years. Apart from that the other factors that are seen and carefully looked into are a stable management team, the mark made in the industry, the growth rate in the market share, the strength of the cash flow and the ability to acquire a loan from any external source. You request in the loan application, the credit rating of the business, income projections, equity amount and collateral security may also be considered.   

Credit card help is what most of the people seek for in today’s time as they are trapped in credit card debts. So, if you are too one of such people, try to look for easy and simple ways online and go for them so as to make your life easy and tension free.