Finding the money to finance your small business

Self Generated

The first source of business financing is always you, the business owner. Your existing cash and investments can provide interest free capital and your home or other fixed assets can be used as collateral to borrow against. Having a good credit rating is also important to secure debt financing at favourable rates.

Term loans and lines of credit

Interest rates are still a at historic low, which means borrowing to invest in your business remains less expensive than it has been in previous years. Two of the most common forms of debt financing are term loans and lines of credit.

A line of credit will allow you the flexibility to draw money when you need it. They're like an "open loan" that can be used whenever the situation demands, such as covering short-term expenses while you wait for money to come in from customers.

Term loans are less flexible but can be a good option when you are planning to purchase an asset and require a certain lump sum of money that you'll repay over time. In general, the time of repayment will be matched to the useful lifespan of an asset purchased.

Credit cards

More than 70 percent of small business owners use credit cards to fulfill some or all of their financing needs. They can be a very convenient source of shortterm cash to buy equipment and cover day-to-day business expenses. Many offer interest grace day periods which you can take full advantage of and borrow interest free.

Credit cards can also give you instant creditability with suppliers, since they establish you as credit worthy and guarantee immediate payment. Credit cards also make it easy to keep track of expenses and manage your cash flow since your spending activity is usually detailed in a monthly statement.

However, don't get carried away. Exercise caution with the number of applications you're filling out when applying for credit, according to Brian Holt, Director of Small Business at Scotiabank.

The proceeding information was provided by Graham Barber, Branch Manager of Scotiabank, Alcona Branch.

The Scotiabank, Alcona Branch, is located at 1161 Innisfil Beach Road, (705) 431-6116.

The Vault is a weekly series of articles provided by Graham Barber with financial advice and suggestions.