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What Are the Different Sources of Business Finance?

Kristie Lorette
Kristie Lorette

There are numerous financing options for businesses to consider, including commercial banks, credit unions, venture capitalists, angel investors or commercial financing. When starting, operating or expanding a business, owners and executives often evaluate the different sources of business finance based on its type.

One of the first sources of business finance is a commercial bank, which often make business loans. The best commercial bank to start with is the one where the business has its own checking, savings and investment accounts because the business already has a relationship with the bank. The commercial bank will arrange the loan in the name of the business, so that it becomes a business liability. Some banks, however, may require a business owner or principal of the business to personally guarantee the loan as well.

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Businessman giving a thumbs-up

One of the other sources of business finance is with a credit union. A credit union is a lending institution that works similar to a commercial bank, but also has its differences. For one, the customers of a credit union are referred to as members. Second, businesses can typically find lower interest rates on business loans than they will find from commercial bank loans.

A third source of business finance is commercial financing. Commercial financing requires that the business have an asset to put up as collateral for the loan. Business assets that are eligible collateral include the building, if it is owned by the business, the accounts receivables, equipment, machinery or inventory.

Another one of the sources of business finance is a venture capitalist, which is a business investor. They invest their money into businesses to get a return on their money, rather than investing their money into stocks, bonds, real estate or some other type of investment. Typically, a venture capitalist invests money in the business, but is also involved in the operations of the business to ensure that they receive the return on investment they are looking to achieve.

Angel investors are another one of the sources of business finance. These investors are similar to venture capitalists, except they tend to be more hands off on the operations of the business than venture capitalists. These types of investors are also looking to receive a return on their investment, but they are not involved in the day to day management of the business. To get money from angel investors, however, the business typically does have to present a plan for the use of the money and how much the investor can expect in return.

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