Creative Business Financing

by Jeff Wright

Last updated 4/19/2021

Creative Business Financing

Creative Business FinancingOnce you burn through your own cash and that of your family and friends, it’s time to consider other sources of financing to grow your business if you don’t qualify for traditional bank financing. Finding a lending partner to finance your business can be time consuming and frustrating. You must be patient and do your homework on the financing that best meets your business needs. Ask yourself:

  • How much money do I need for working capital?
  • What will it be used for?
  • When do I need it?
  • What collateral will secure the loan?
  • How will it be repaid?

Any lender will want answers to these questions. While each source of financing has different requirements, it’s best to be prepared before applying and allow enough time for the lender to conduct its due diligence. Have a business plan that includes:

  • Executive summary of the company’s history
  • Ownership breakdown
  • Management bios
  • Description of what the company does and product/service offerings
  • Financial history, if any
  • Cash flow
  • Income and balance sheet projections
  • Collateral that can be pledged
  • Sources and uses of funds
  • Market analysis
  • Industry competition

Non-Traditional Ways to Finance your Business

  • Peer-to-Peer Financing – up to $25,000 through online investment platforms to borrowers who have less than perfect credit scores. Turnaround time to finance is usually days. Companies like and are ones to consider.
  • Crowdfunding – allows the business owner to raise capital from a large pool of contributors through sites like Kickstarter, Indiegogo, and Crowdfunder; many are reward based. Since the competition for dollars is fierce, it’s important to incentivize the contributors with something like early access to your product or service. The drawback is that it may take time to attract enough valuable contributors to meet your business capital needs. On the positive side, these contributors provide a market for the company’s product or service.
  • Microloan Lenders – there are many private companies and non-profits that finance up to $50,000. Terms may call for repayment up to six years with competitive rates.
  • Merchant Financing – many finance under $500,000 and require repayment in 18-24 months. They review bank statement deposits, balances, and overdraft history of the company. Repayment is taken daily directly out of the company’s bank account. Rates are typically higher than other financing sources.
  • Angel Financing – seed capital to pre-revenue and early stage companies. Owners may lose some ownership interest and management control of the company.
  • 401K Retirement Funds – It’s risky, but the owner can roll retirement savings into stock and circumvent taxes and early withdrawal penalties. The upside is that the owner can leverage his/her own capital to fund the business. The big risk is if the business fails, then the owner loses the money saved for retirement.
  • Vendor Financing – Negotiating with the company’s suppliers for extended terms. It’s not a loan, but can help when cash is tight.
  • Life Insurance – Owners can borrow against the cash surrender value of their life insurance policies to inject cash into the business.
  • Purchase Order (PO) Lenders – If the business receives POs but doesn’t have the cash flow to support the purchase and processing of the inventory, PO financing can be an effective source. This allows the owner to take advantage of opportunities to secure new business or keep existing customers from leaving for a competitor. Rates are higher than asset-based lenders because of the performance risk. If the borrower does not perform and deliver the product to the satisfaction of the customer, the PO lender doesn’t get repaid. Repayment is normally from refinancing with an asset-based lender or factor once the product has been delivered and verified.
  • Asset-Based Lending or Factoring – When traditional banks say ‘no,’ asset-based lenders and factors provide a quick source of working capital to grow the business. Advances are secured by the business assets of companies from start-ups with no operating history and owners with poor credit to mature companies with losses, negative net worth, and high leverage.

For larger cash needs, venture capital and private equity offer an option for companies that can demonstrate the ability to grow their business. In both cases, the owner receives capital and support from an experienced management team, but loses some ownership interest and management control of the business.

Terms of the Deal

Once you have identified the best financing source, consider the following:

  • Amount of loan request/borrowing availability
  • Rate
  • Repayment terms
  • Collateral to be pledged
  • Personal guaranty
  • Loan covenants
  • Ownership loss or control of the business
  • Timing on getting financing and the conditions to fund
  • Financial and collateral reporting requirements
  • Closing costs, unused line and exit fees, and other miscellaneous fees

Note: Not all terms apply for each source of financing

Choosing a Lender

The lowest rate shouldn’t be the sole determinant when picking a source of financing. All terms must be reviewed to determine the best solution. Terms that are too restrictive and lack flexibility can present problems if there is a downward trend in operations. It can lead to a demand for repayment, higher default interest rates, or other fees and additional costs for legal assistance to protect your interests.

Business owners will run into numerous roadblocks that can be frustrating to deal with. It’s easy to throw your hands in the air and accept defeat instead of pursuing alternative solutions. But be creative. Securing a new source of capital will greatly help your company’s viability and success. Once your ideal lender has been identified, negotiate the best terms to meet the needs of the company and ownership.

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About the Author

Jeff Wright has been with the Hitachi team since 2006 and contributes more than 30 years of experience in the banking and commercial finance industry. He is currently responsible for business development in the Midwest region, and works with businesses and their trusted advisor network to provide factoring and asset-based lending services. Contact Jeff at (248) 259-3749 or
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