Small Business Finance Guide – Part II

Types of Financing

Most states have a Small Business Development Center (SBDC) as part of the junior college system. SBDC’s are a nationwide network of sites, typically housed at colleges and universities, which provide training and advice to small businesses on all aspects of starting, financing, and managing a business.

  • Vendor Finance: If you have established a good relationship with a vendor, the vendor may be willing to finance part of your business by extending their terms of payment for a predetermined length of time. You can approach vendors and show them your business plan and the orders you’ve already received. If the vendor is convinced that your business will be successful and one of their better customers in the future, they may be willing to offer extended payment terms. Establishing supplier exclusivity for a documented amount of time may also be exchanged for longer credit terms. Your business may be required to pay a higher price for this arrangement.
  • Prepay Financing: If you have successfully demonstrated to your customers that you deliver your merchandise on time and as ordered, you may be able to persuade one or more of them to put a deposit on their future orders, perhaps as much as 50%. You can add an incentive by decreasing your price a bit in exchange for the deposit. Or, you can offer a bonus: if they’ve ordered 100 items, they get 10 at no charge. New customers can also be asked for a deposit, especially if it’s a large or custom order.
  • Factoring: If your business has some receivables and needs short term cash, factoring may be a good way to go. This involves selling your receivables at a discount, you get the cash now when you need it, however this will reduce your profitability.

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