Studies show that poor small business credit and financing is the primary reason businesses fail.  Below are four ideas that might help you. 

It is important to develop a small business financing strategy so that you have enough cash avalable for starting-up, meeting your ongoing obligations, and growing your business.

Small business financing idea #1:  Getting a loan

If getting a loan from friends and family is not enough to meet your need (or you just prefer not to do that), you might want to loaning money form a bank, credit union, savings and loan or other financial institution.

According to a recent report*, over 80 percent of small businesses use some kind of credit for financing.

Having good credit score is usually prequisite. .

Here are some choices:

Credit cards

Nearly 81% percent of small businesses use credit cards as a form of financing. (4about 46% personal credit, 35% business credit cards).

Advantages: Credit cards are relatively easy for most people to get. You generally dont have to produce business plans or financial projections to get this form of credit. Credit cards are easy to manage, and in many cases you will be able to write the interest off as a business expense. Even if the card has an annual fee, its often less than fees charged by banks on commercial loans.

Disadvantages: Credit card interests rates are generally very high, and many businesses who use them can find themselves in too much debt if they are not used wisely. In addition, credit cards are based on the peronal credit score and rating of the business owner, and the owner is personally liable for the credit.

Personal loan Getting a personal loan based on your income and credit rating is another possibility. Personal loans issued can be quite flexible. It is important, though, that you apply for this type of loan whie youre getting income from a regular, stable source (such as a regular job) as your level of current income is a large determining factor in the loan approval. Some personal loans can come in the form of a line of credit that you can draw on as you need, and re-pay on a monthly basis  similar to a credit card.

Home equity loan This loan is similar to a personal loan, except that your home is put up as collateral in the event you default. Home equity loans can be quite easily attained, but you should consider them carefully: if you business hits financial trouble, your house may be on the line. Usually home equity loans have terms of 10-15 years, and you can often get a lump sum or set-up a line of credit.

Line of credit About 30% of small businesses use some sort of of line of credit. Similar to the way a credit card works, the bank will establish a credit limit (the maximum amount you can borrow), and establish a re-payment plan (often monthly). The financial strength of your company plays the largest role in the size of the line of credit. Commercial lines of credit are genereally used for short-term financing needs, and there is generally deadline in which the entire line of credit must be re-paid to the lender.

Business loan

Loans for minority-owned or woman-owned small businesses &.

If youre a start-up, it will be more difficult to get a business loan because of the inherit risky nature of new businesses (about 50% of all new businesses fail in the first few years). To get a business loan, youll need to have a business plan, a good relationship with a banker, and likely assets in the business that will be used as collateral in the event you default on the loan.

SBA loan The Small Business Administration (SBA) does not actually loan money, but it guarantees the loan  up to 80% of the principle. These are best used for purchasing equipment or financing the purchase of an exisiting business. The loans are relatively inexpensive, but the application process is very challenging. More information on SBA guaranteed loans can be found at www.sba.gov

Small business financing idea #2:  Grants

The wonderful part of a getting a small business grant is that you dont have to pay it back. Most grants come from governments and are issued on the basis of supporting research and development projects, supporting local infrastructure developments and other community-related projects. Depending on the type of business your in, you should investigate the scores of grants that are available, because it is, after all, free money!

Small business financing idea #3: Increasing your cash flow

Ask your customers to pre-pay Dont pay bills sooner than you have to. Make sure you bill customers on time  and that your invoices are accurate Consider billing your customers more often Pay attention to payment discounts Manage your expenses Manager your accounts receivable

Small business financing idea #4: Tax deductions

Small business tax deductions are another way of funding  but in a backwards way.

*Data from the Small Business Administrations Financing Patterns of Small Firms, Sept. 2003 which gives a variet information on small business financing trends.