Your mother always warned, “Don’t put all your eggs in one basket” and those words of wisdom can be applied when financing a business. There are a number of methods that can aid buyers in financing a business. Buyers must recognize their available resources such as the seller, lenders, and investors.As a child, we’re encouraged to “dream big” and told that nothing can stop us, but ourselves. As entrepreneurial adults, this idea of dreaming big is often a part of your everyday routine, but it is inevitable that at some point you’ll come crashing down from those heights into reality. The realization that financing your particular endeavor can instantly dampen even the most impassioned enterprising individual can get you down. To put it bluntly, “Don’t let it”.Having a reality check on the difficulty of securing financing for a business can be the first step towards making your dream an actuality. There are numerous types of financing available, some more unorthodox or obscure. If you take the time and effort to research all avenues for funding you will be rewarded.There are two main types of financing: debt financing and equity financing. It is important to you and the success of your business that you familiarize yourself with the types of financing in order to choose, seek, and finally, obtain the right form for your needs.Debt financing involves borrowing money that will be repaid over a certain allotted time with a set interest rate tacked on. The time of such financing can be short term or long-term. In most cases, short term financing would include repayment within one year, while long-term financing would entail repayment in a time period that exceeds one year.An advantage of this type of financing is the fact that the lender will not gain ownership in your business. You remain in control and your only obligation to them is to make regular and timely payments. In the case of small startups, a personal guarantee is often needed to facilitate the closing of the financing deal.Equity financing, unlike debt financing, will involve giving the financing entity a share in the business. Some business owners dislike the idea of losing any amount of control. On a positive note, this type of financing does not incur debt. This kind of freedom from debt can give a greater sense of security in starting a new business. In addition, some entrepreneurs find great value in their equity financing partners, and see their presence as an asset.The type of financing you will choose is based largely on the needs of your business and the kind of collateral, or available assets you have to offer. A substantial amount of debt financing can lead to poor credit and a shortage of funds in the future due to an inability to apply for more financing. A business that becomes overextended, offers little collateral, and is steeped in debt is not an appealing option for many investors.As previously mentioned, there are other more unorthodox methods of obtaining funds that can certainly prove to be beneficial to your business. Some options can be found in your own circle of friends and family. One benefit of this type of financing is obtaining the money and a silent partner who will most likely not interfere with your business. It can also eliminate some of the red tape involved with more traditional forms of financing. This does not mean you can simply use a verbal agreement or “shake on it” to signify and bind the transaction. This is still a strategic business move and you must treat it as such which means proper documentation, clear terms, and mutual understanding of those terms.Relationships can be ruined over inept efforts with this type of financing, so value your business and the other person by treating it with professionalism, attention to detail, and respect. Don’t become the black sheep at the next family reunion over some misunderstanding or your falling behind on payments.A few other options that are largely unknown to those who haven’t done research include unsecured loans and micro-loans. Resources such as TheSnapLoan.com or Prosper.com offer loans based on cash flow, credit score, and debt-to-income ratio. Government grants are also a largely untapped resource that is made available to entrepreneurs. Simply researching the website Grants.gov can be extremely helpful in your search for funds.Venture capital is another route that many entrepreneurs look to due to the amount of funding that can be procured. A venture capitalist will likely offer larger sums of money that can be of great assistance to your business, but they will also gain a certain portion of control and ownership. This type of funding however is usually scarce due to the assumption that many startups will inevitably fail. You will need to find someone willing to take the risk and who sees potential in your vision.This type of person could also be found in a more palatable option known as the Angel investor. The Angel investor typically has a high net worth and like the venture capitalist, must believe in the product and the person behind the product. Their loan often converts to stock, preferred stock, or convertible bonds.Les Brown, an author and entrepreneur, says, “Shoot for the moon and if you miss you will still be among the stars”. This is an extremely appropriate sentiment as it encourages you to keep dreaming big and ultimately those dreams combined with perseverance and research will take you closer to where you want to be.The following is a chart that demonstrates the normal financing options available to businesses in different stages of the business life cycle.For more on these topics visit Dyer Consulting Group

The average business commercial payment time frame is currently around 60 days, a statistic which has steadily increased over recent years. A business trading on credit terms with other businesses, will over time accumulate a substantial asset on its balance sheet called Accounts Receivable, or Trade Debtors.Debtor Finance is a broad description which describes a type of finance which uses trade Receivables as security for a cash advance. In technical terms there are a variety of legal models for debtor finance. In some situations it is structured simply as a loan, with the Receivables asset acting as security, much like a home mortgage.On the other hand, factoring usually involves legal ownership of the debts passing to the financier, possibly on an undisclosed basis – i.e. the debtor is not informed – or more often fully disclosed where the debtor is made aware of the financing arrangement.When debtor finance is in the form of a debt factoring arrangement, the cash advances available can be flexibly adjusted according to a percentage of debtor sales which provides a high level of convenience for a business which is expanding, and needing more cash to do so.Security Requirements of Debtor FinanceAll debtor finance arrangements carry some security requirements, firstly directly over the Receivables, but also possibly (less desirable from the borrower’s point of view ) supported by collateral assets and/or personal guarantees.As with other forms of credit which are linked to the value of the underlying security the amount borrowed or financed will depend on the asset values. Typically debtor finance funding is permitted for about 70% to 90% of the value of the debtor invoices.Advances and Cash FlowsA factoring arrangement which involves the financing of the entire debtors ledger, can effectively operate just like an overdraft. This means that within the overall financing limits, and taking into to account such factors as bad debts when they occur, the borrower can effectively draw and repay any amount at any time.Smaller financing arrangements which include Invoice Finance or Invoice Discounting arrangements will generally split the financing into two cash flow lumps:
The first lump is the advance, for 70% to 90% of the invoice value
The second lump is the balance, from which the financiers recovers fees.
Each financing method has its pros and cons. Financing the entire debtors ledger will usually involve some contractual commitments for a period of time, at least 6 months, often a year or more. Invoice finance on the other is generally shorter term, and may not require a fixed term commitment. Invoice finance be very flexible when used on an ad hoc basis, helping to keep costs down, but closer monitoring of actual cash flows would normally be necessary.When Is Debtor Finance The Best Option?Debtor finance is most useful for a business which has relatively long cash conversion period, when compared to the cost of its major supplies. This is best explained by way of example: Simplistically if a business has to pay all its bills in an average of, say 21 days, yet the settlement terms of most of its customers are 45 days or more, then expanding the business will always absorb more cash than is available from the business in the short term.This kind of cash flow stress most often arises in manufacturing companies, wholesalers and labor hire companies; in effect any business where the cost of sales is made up to a large extent by labor costs, and/or inventory.If other sources of finance are not available, or are more expensive, then reaching into the company’s balance sheet for a debtor financing arrangement can release cash to the next project or job, while valued customers can still take advantage of their normal payment terms.