Factor companies are very willing to advance funds against account receivable, particularly if the customer is well established. Banks, too, can take inventory as collateral on term loans. And in the extreme it is possible to obtain financing from one’ s employees. All of these are debt instruments which must be repaid.
Long-Term Solutions A company can obtain long-term loans, particularly for new equipment, processes or plant improvements. The federal government guarantees loans of this nature through the Small Business Loans Act that is administered through the chartered banks or credit unions. Federal programs, including regional economic development programs, have been established to encourage long-term financing.
However, the ultimate long-term solution for the new venture is to seek equity financing. Any There is always a desire on the part of the entrepreneur to hold on to as much of the venture as can be managed. But lending agencies normally require collateral to support any loan made to a venture in the from of chattel against assets or guarantees. In most cases, the new venture has limited resources and usually cannot come up with collateral. In this situation the answer is to raise capital through equity and a portion of ownership in the venture.