If your small business were a grocery store or automotive mechanic shop, most every lender in the U.S. would immediately understand your business model. If you were to approach them looking for a line of credit, they would be able to rather quickly determine if your business is able to receive some small business financing from them or not. However, as the owner of a telecommunications company you know that this is not always the case for your industry. Traditional lenders just simply do not understand how telecom companies do business and the intracacies of telecommunications funding.
If you are a large multi-national telecom company, funding abounds for you just simply because of the huge amount of revenue your business generates month after month. However, if you are a small telecom business, obtaining that line of credit can be much more difficult. When you approach a traditional lender for funding, you will likely find that they do not understand your business model and telecommunications financing in general. It is not in the traditional banker's interest to work with telecommunications businesses with receivables that are all small amounts with many customers. Generally, your receivables take 45 or more days to receive after delivery of services. Because these billing issues are unique to the telecom industry, traditional lenders do not fully comprehend the fine details and tend to choose to deal with businesses in more traditional roles.
Once your small telecommunications business is on solid ground, and you are looking to expand your market base, there are three options readily availablec to you for obtaining small business financing. These three options are: factoring, asset based solutions, and investment capital. Let's take a quick look at each of these options:
Factoring: Factoring is a financing process which allows your company to borrow money against its receivables; your receivables are used as the collateral for the loan. The down side to traditional factoring is that this type of funding generally comes with high interest rates. By finding a lender with telecommunications financing experience, you can sometimes find a lower rate. This makes factoring a strong consideration only if you are able to locate a specialized lender with telecommunications financing experience.
Asset Based Solutions: Asset based funding solutions involve using your existing contracts, equipment, and other assets, as the collateral for your funding. This can be a good option to consider if you have a lot of assets or large contracts to leverage. However, if you own a very small local telecom company, your company may not have the assets or contracts to make this form of funding work. In that case, investment capital may be a good option to consider.
Investment Capital: If your business is open to the idea of investment capital, versus a traditional line of credit, investment capital can be a win-win situation for everyone.
While finding small business financing can be challenging in the telecommunications industry, it is not impossible. When it is time for your small telecom company to expand you should consider factoring, asset based solutions, and investment capital as possible options. Whatever your decision may be, as long as it fits within your long-term business plans, then you are sure to succeed.
In terms of financing there are several things that need to be examined; do you need working capital or can you use existing cash flow for the small business? How urgent is your need for financing and what are your risks? What will the capital be used for and what industry does the small business operate under? There are an exhaustive amount of questions that need to be answered when it comes to financing a small business.
Realize that there are two different types of financing; equity financing and debt financing. Equity financing is looked at as the amount of equity to debt ratio that you have in the business. The biggest resource of equity financing comes from venture capitalists. A venture capitalist is generally a financial wizard with a lot of money to invest. They prefer to invest in businesses that are 3 to 5 years old that look promising and are able to offer a big return on the initial investment.
Debt financing can be obtained through banks, credit unions,lending companies and other financial institutions that offer services to small business owners. The government, both on the federal and local level, also has numerous programs in place to assist people in securing financing for small business.
One of the most common places to look for financing opportunities is with the United States Small Business Administration. This entity has a number of programs in place, including special financing programs for women, veterans and Native Americans who wish to secure funds for a small business. The U.S. Small Business Administration has a comprehensive website that explains in detail all of their available financing programs.
Another source of funds for small businesses come in the form of grants. A grant is an award of money that does not have to be repaid. Many times, grants come with stipulations on how the funds can be used, but there do exist many grants that are available for the sole purpose of starting up a small business.Grants are available from a number of sources including the federal government, private organizations and individuals, and local initiatives that may be offered in your local area. Some of the different entities that award grants include the Small Business Administration, the Department of Veterans Affairs,and the National Science Foundation, just to name a few.
If you are just starting up your business and have already invested a significant amount of your personal funds, you are more apt to qualify for a small business loan through a commercial lender. Before using debt financing to fund a small business, it is wise to first exhaust all other avenues. Business associates, friends and family members may be willing to invest a bit of money if you are able to provide them with a sound business plan and the potential for a healthy return on their investment.
Both Andrew Stratton & Hansi Demark are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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