Small business financing comes in a number of different forms. Typically, when an entrepreneur wants to start a new business then they approach their local bank as it relates to receiving a loan in order to launch their operations. However, obtaining a loan from a bank comes with a number of risks. As we have discussed before, you are almost certainly going to need to provide a personal guarantee as it relates to receiving the capital that you need for your new business venture.
Second, you may need to provide your home, car, and retirement accounts as collateral as it relates to your loan. As such, the risks related to this type of financing are extremely high as it relates to your personal financial situation. We strongly recommend that you speak with your certified public accountant as well as your financial adviser before you undertake a large debt obligation in order to launch or expand a new business venture. We are going to continue to touch on the subject of the risks relating to small business financing as we write about this subject.
Of course, and as we have mentioned before, you can always seek the assistance of a private investor as it relates to financing your business operations. However, there are significant risks involved when you are working with private funding sources due to the fact that they can take control of your business very quickly. As such, we recommend that you speak to your lawyer before you begin the process of raising capital from a private investor. This is not only due the risks that you business may face as you seek this type of funding, but also because you are going to need to comply with a number of securities laws as you obtain capital from private sources. Additionally, your legal counsel will be able to provide you with a tremendous amount of guidance as it relates to negotiating a proper deal with an angel investor or outside funding source.
Finally, all types of small business financing comes at a cost. Whether you are going to have to pay a significant amount of capital for a loan or sell your business to a third party there are issues that you are going to need to confront as it relates to your cash flow. One of the other things that we constantly recommend is that you develop an appropriate profit and loss statement and cash flow analysis that you can use to determine the cost of capital as it relates to your business venture.