Types of finance options for funding your business

In order to start or expand a business you are going to need to obtain some kind of funding. When it comes to funding your business there are many different styles of funding that you can choose from, For example, you can take out a second mortgage on your home or you can apply for a business loan through a bank. The type of funding that you choose for financing your business is going to vary depending on what you need the funding for. For example, if you plan to expand your business, you can apply for a second mortgage on your home, but if you are starting the business from the ground up you will want to apply for a small business loan through a bank.

Here is a look at some of the different finance options you have for funding your business.

Number one: Traditional
Traditional financing is the most common form of funding used to finance businesses. With traditional financing, you will be supplied financing through banks in the format of a loan. The loans can be made to the business itself or it can be made out to you in the form of a personal loan. To obtain a loan from a bank you are going to need to have a business plan in place, you will also need to supply the loan officer with a cash flow forecast. Something else to consider with traditional financing is that in order to qualify for a small business loan or a personal loan you will need to have a good credit score or your business will need to have good credit.

Number two: Second mortgages
This type of funding should only be considered after you have tried all of your other options. The reason for this is that if you take out a second mortgage on your home to finance your business you risk losing your house. How that will happen is if your business goes under you can lose your house because you will still be responsible for making the mortgage payments. If you default on the mortgage payments, you risk facing foreclosure on your home. The best time to use a second mortgage for financing a business is if your business is already established and you plan to expand your business.

Number three: Commercial mortgage loans
Part of financing your business is going to involve purchasing property for your business, such as for a location for your business. Purchasing property for your business is done through a commercial mortgage loan, which is different from a traditional loan for financing your business. With commercial mortgage loans, you can actually run into problems when trying to get the loan to purchase certain types of properties because they are known as special purpose properties. Examples of special purpose properties would include sheet metal shops, churches, funeral homes, chemical plants, and many others. Many banks try to not to give out commercial mortgage loans for these types of properties because of the risk involved in that type of business, the bigger the risk the bigger your chances of defaulting on the loan. Something else that they do with commercial mortgage loans is attaching a balloon payment to the end of the loan or they will attach a recall provision. The recall provision allows them to make you pay back the loan early if certain conditions are met.

Remember these are only a few of the financing methods that you can use to obtain financing for your business. The type of funding that you decide to use for your business is going to depend based on what you need the funding for and what type of business you are running.