This is normally a loan than can be converted (at the lender’s option) into an ownership position in the company. These are most common with seed or start-up funding where the lender would like a piece of the rock in the event you become a tremendous success.
Most states have revenue bonds. These bonds are usually designed as debt instruments, where the company issues the bond and the state agency underwrites it. These bonds are generally issued to promote manufacturing facilities that will create jobs.
Lines of Credit
A revolving account that is continuous in its nature. The funds are available as draw downs against the total line. These types of accounts are most commonly secured with accounts receivable and inventory as collateral.
This book covers the major types of business financing. There are numerous creative ways to finance your business. If one of those comes your way take a moment to investigate it.
The five most common sources of short-term working capital financing:
From your own personal resources or from a family member, friend or third-party investor.
- Trade Creditors:
Willing to extend terms to enable you to meet orders. For instance, if you receive an order that you can fulfill, ship out and collect in 60 days, you obtain 60-day terms from your supplier if 30-day terms are normally given.
Once you have filled an order, a factoring company buys your account receivable and then handles the collection.
- Line of credit:
If you have good collateral and credit, you might qualify. A line of credit allows you to borrow funds for short-term needs when they arise.
- Short-term loan:
A one-time short-term loan (less than a year) to finance your temporary working capital needs. If you have a good banking relationship with a banker, they might be willing to provide a short-term note for one order or accounts receivable buildup.
A good understanding of working capital is imperative to make your business successful.