Every business, especially startups, needs business financing to operate. Small businesses and startups need financing to offset the starting costs, while ongoing businesses should finance their working capital and business growth. The decision to take a business loan is common, but the choice of financing option often differs. Ideally, the type of business, position, market opportunities, and other factors determine your choice of financing option.

Business financing for small businesses in Arizona remains a challenge in many ways. Most small business owners can’t qualify for loans from commercial lenders and other established institutions. Fortunately, the popularity of other loan alternatives, such as title loans in Arizona State, has made it possible for entrepreneurs to actualize their business plans. Below are funding options for businesses in Arizona.

1.  Commercial Lenders

Commercial lenders provide several types of business loans to businesses. As mentioned, they most likely finance established businesses with valuable assets. However, startup and small business owners shouldn’t be quick to condemn banks for not financing new businesses. Ideally, banks are prohibited from investing in businesses and are strictly limited by federal banking laws.

The central government cautions banks from loaning businesses using depositor savings. The depositor’s savings would be at risk if the business fails or collapses. Banks shouldn’t loan startup companies for the same reasons. Federal regulators advise banks to keep depositors’ money safe and offer loans backed by equivalent collaterals. Unfortunately, startups don’t have enough collateral to satisfy bank requirements.

2.  Venture Capital

Venture capital is probably the most misunderstood source of financing, with most startups complaining that these companies don’t invest in new or risky businesses. Many people think of venture capital companies as sharks due to their predatory business practices. However, venture capitalists are essentially business people charged with investing money from other people.

The professional responsibility of venture capitalists is to invest in less-risky businesses while producing returns that satisfy their financiers’ demands. Very exceptional businesses should consider venture capital for funding. These companies only invest in startups with a perfect combination of market opportunity, proven management, and product.

3.  Alternative Lenders

Apart from banks, startups, and small businesses can turn to alternative lenders for funding. Two common alternative lenders for startups in Arizona are hard money loan lenders and accounts receivable. Hard money loans are a perfect option for Arizona residents who don’t qualify for commercial loans from banks. Unlike banks, which focus on the borrower’s ability to repay the loan taken, private lenders use collateral, which may be a house, car, or any other asset.

On the other hand, entrepreneurs with an operational business should consider borrowing against their accounts receivables. Accounts receivable is a perfect option for supporting cash flow when your capital is stuck in accounts receivable. For instance, if you supply to distributors who clear invoices after 30 days, and your outstanding payment is $50,000, your business can borrow up to $25,000.

Endnote

Sourcing funding for startups and small businesses is daunting. Consider these financing options if you don’t have enough savings to invest in your business. Other options include personal loans, Crowdfunding, small business loans, and Angels.