Creative Business Financing
Creative business financing is a relative phrase, meaning different things to different people. However, for most businesses not named Microsoft, IBM, Wal-Mart or Bank of America, creative financing is often necessary to achieve their goals. Understanding some of the components of creative financing should help your search for business in the future.
Function
1. The obvious function of creative business financing is to provide the funds needed by companies to expand, produce products, offer services or meet current obligations. Other less obvious functions also exist. Many companies often lack sufficient assets or cash flow to make standard bank financing feasible. Creative methods, using more nontraditional collateral or fewer “hard” assets, can provide the funding necessary.
Types
2. Creative business financing, by definition, does not fit the classic collateral pledge in return for funds. For small businesses, the SBA (Small Business Administration) provides a wide variety of creative financing for companies that otherwise do not qualify for standard commercial loans. Other businesses may locate private persons or companies that provide investment or loans to companies lacking sufficient assets to secure bank financing. Family and friends can also be an effective source of creative financing.
Benefits
3. Beyond the obvious benefits to individual companies, creative business financing often provides additional help to entire industries or, sometimes, the overall economy of a country. For example, a smaller business has superior talent that is close to producing a new, non-fossil fuel, renewable energy source. What they lack in hard assets they make up for in a workable idea that just needs financing to reach the market. Using creative, nontraditional financing, they receive the funds they need and produce a wonderful new energy form. Other companies may follow, using additional creative commercial financing as the way to succeed.
Expert Insight 4. There are numerous experts in creative financing techniques, but there are also many pretenders that a business may encounter. It is important to find the true experts and experienced providers of nontraditional financing to save money and time. Companies seeking creative business financing must perform sufficient background on potential funding providers to be comfortable that they are dealing with professionals.Misconceptions
5. Some people are under the misconception that creative business financing is improper or, even, illegal. However, the reality is that creative financing is important, if not critical to the continued success of many businesses. In some cases, it is not only legal but preferable to classic bank financing.
Effects
6. Creative business financing takes many “outside the box” forms. Offered by the SBA, which guarantees to the lender up to 80 percent of commercial money borrowed, and other private and public lending entities, creative business financing is the fuel that powers the commercial engine of smaller companies. Its continued availability is necessary for a healthy business economy.