Financing Small Business Capital Needs

JohnTaylor March 28, 2014 0

If you own a small business and need financing for capital needs such as a building, vehicles or other heavy equipment, there are a number of options you can turn to in order to obtain funding.

Purchasing new facilities or large equipment is a big step for new and existing small businesses. Each move requires an act of faith on the part of the business owner predicated on the belief that the business will prosper. Making sure that belief becomes a reality could depend on how you fund the purchase.

Here’s a few ways to secure funding for capital projects:

Collateral loans: If your business already owns property, you can put this property up as collateral to secure a loan for your new capital needs. You can also put up other assets as collateral for a loan. For example, if you have a pretty large amount of account receivables, you may be able to put these up as collateral for a loan. If a bank is unwilling to make a loan, you can turn to an asset-based lender, although these lenders are likely to charge higher interest rates.

Refinancing existing loans: If you have a significant amount of equity in your current property, you may be able to refinance your loans to borrow additional money for a new facility. There’s a risk involved, as adverse circumstances that make you unable to pay the loan could put you in risk of losing your current property, but with good management, your equity in your current location can provide an excellent avenue to pursue for financing for new facilities or equipment.

SBA loans: Loans backed by the Small Business Administration can be extremely helpful. Businesses who can obtain SBA backing will have an easier time securing loans because of the reduced risk associated with a government-backed loan. The Obama administration has expanded SBA programs in recent years to help put more capital in the hands of small business owners to expand their businesses.

Many SBA sponsored loans are specifially for business expansion and capital purchases and many are awarded based on certain factors, such as minority ownership of the business or location in an economically disadvantaged area.

Legislation passed in 2010 upped caps on SBA loans and also allowed for the refinancing of loans to help pay for commercial real estate development.

When considering making capital improvements to your business, it’s also worth your while to talk to your accountant or financial advisor concerning any tax advantages you may realize by building new facilities or buying new equipment. Tax law changes from year to year, but lawmakers routinely try to incentivize certain activities by business, and your improvements may be tax-advantaged. Checking with your financial advisor can help you determine if now is the right time from a tax standpoint to make improvements, or if by waiting a few months you can take advantage of pending tax benefits.

Finding financing for your capital needs is key to the growth of your business. By careful evaluation of your options and the advice of a financial professional, you can find an option that’s well-suited to your business.

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