Finance Tutorial

The growing crisis on Wall Street has led a lot of banks to clamp down on lending, depriving a lot of people of the financing they need. If you currently need extra capital to pay some of your debts or expand your business, then the Finance Tutorial below will let you know more. Where to get it, but also the pros and cons of each lending institution.

1. Microlenders

Pros: Microlenders have always been the number one lender to consider if you have bad credit, and that is because they don’t care about it. As long as you need maximum 5000 dollars, you’re certainly going to qualify for a loan. However, some may even offer loans of up to 25000 dollars if you know where to look. Keep in mind though that microlenders do require some collateral.

Cons: As you can imagine, microlenders don’t give large loans, and they are also quite a bit hard to find. On top of that, microlending is something that’s limited to the United States and before the money is sent to your bank account, they’ll take their time to carefully evaluate your business. While fifteen to thirty days is the norm, some people may even have to wait up to 60 days for a possible approval.

2. Friends and family

Pros: Most of the times review processes are as simple as a phone call, and that is why for most of us they are the number one financing source we consider. There are no lawyer fees, and the transaction is minimally documented as well. If you’re in good ties with your family and they aren’t angry on you from last year’s Thanksgiving Day, when you shouted at Uncle Jim for eating your turkey drumstick, then you can definitely bet on their help.

Cons: If you’re borrowing the money to fund your business which eventually goes bust, you’ll feel a lot worse looking your family in the eyes and telling them about it compared to telling it to the bank.

3. Angels

Pros: An angel investor is someone who invests in the early stages of a promising venture. As you can imagine, these guys are really rich (they’re generally business owners) so you can get both human capital and expertise from the deal. There are many angel groups across the country and what makes them a viable option is the fact that there can be flexibility in the structure of the return.

Cons: Since they’re putting their hard earned money on the line, be prepared to play by their rules. Before they invest, you also have to make sure you put the requirements of the deal on the table so they can carefully study them. On top of that, you should be aware that angel investors will always hold shares in the company.

4. Venture capitalists

Pros: One thing that makes VCs a great source of funding is that they have tons of money. It’s not like they hand it out from their wallet though but compared to bank loans; you can seek much larger amounts. This is only possible though if you can find a venture capitalist company that specializes in your industry.

Cons: Some say that VCs can be a total waste of time, and that’s because they’re only going to take several promising companies and will also scrutinize your venture like a regular bank would. Even if you’re eventually going to score a deal, these guys are expensive and will probably want you to surrender partial ownership of your company.

5. Credit unions

Pros: One of the main benefits of taking out a loan from a credit institution is that if you already have an account with one, then you’re owning a part of it. As a result, you’ll be seen more as a member and not as a number.

Cons: It’s true that compared to most other lenders out there, credit unions have reasonable rates, but the truth is that in most cases they can be as cautious as banks. This means that getting the financing you need for your business can prove to be a bit challenging at times.

6. Credit cards

Pros: Not everyone has a great credit rating these days, but if you do, then credit cards are a great way to secure some pretty good funding.

Cons: Besides the risk of damaging your credit, you also have to put up with high-interest rates that can sometimes be very difficult to swallow. For many people, credit cards should be considered as a last resort if all else fails. No one wants to pay high-interest rates and also damage their credit rating at the same time if they fail to make payments on time.

7. Factoring

Pros: What is factoring, you ask? Well, this is a practice that involves selling your accounts receivables to a factoring company and this way you’re going to get a certain percentage amount of the money. Later on, you’re going to collect the entire amount due either from your customer or you. Factoring companies do charge some fees for their services, and they start at 1.5 percent of the financed receivables. Keep in mind that most of them won’t insure against nonpayment, so if your client defaults, you’ll need to fork out the money you have been advanced. As for the benefits of factoring, you get instant money and, therefore, can reduce overhead and stabilize your cash flow.

Cons: Since the factoring company takes a cut of your invoice, it can quickly get very expensive. On top of that, if you want to take out a new loan, you won’t be able to use your accounts receivables as security or collateral anymore. To see whether using a factoring company to get funding is a good idea, make sure you study your balance sheet carefully, specifically the account receivables. If you see you have been undisciplined with collecting the cash, it’s best that you try as much as you can to be timelier.

Whatever funding method you wish to pursue, always make sure that you read the terms and conditions carefully, so you know exactly how much money you can get and how much you need to pay back. Getting a payday loan online with a high-interest rate that you’ll end up defaulting on because you were too focused on just getting the money is certainly not a good way to go about getting financing.