Your Corporate Structure May Affect Your Financing Options
For your business to get ahead, you need to know where to turn for financing solutions. There are many reasons you may need access to capital. Perhaps you are looking to expand and need funds for real estate investments. Maybe your clients are delayed on payments and you need cash flow to cover expenses like payroll. Whatever the reason, the right financing plays a big part in your success. What many business owners don’t realize, however, is that corporate structure has a direct impact on your ability to access certain financing options.
Determine the Structure
In order for you to raise capital, you first must think of the legal structure of your corporate enterprise. A majority of new businesses are sole proprietorships. This legal status states that both the owner and the business are one and the same entity. If any debts are taken on by your business, for example, then you are responsible for paying the money back. Though this is not always the best status, it does grant you access to many loan options. Traditional bank loans and lines of credit are some of the easiest financing solutions to consider.
If you own your business with another individual or entity, then your corporate structure is considered a partnership. While there are some similarities between this structure and that of the sole proprietorship, those in partnerships have more flexibility when it comes to finding the right financing solutions. A majority of businesses classified in this way will use the credit rating of the business to apply for financing, rather than using the personal credit score of any individuals involves. This move grants you access to better loan options with improved rates and terms.
Another way to broaden your financing horizons is by incorporating your business. Becoming a corporation is a great way to establish your business as its own entity and give yourself more options in regard to finding access to cash flow. Popular financing options for corporations include working with venture capital investment firms or working with private investors. The biggest advantage of working with a venture group is that you are not held responsible for paying back the money borrowed if the business endeavors fall short of expectations.
Finding the right financing is crucial when it comes to the overall success of your business. In order to give yourself access to the best options for your needs, it is important to consider the corporate structure of your establishment. Once you determine this factor, it is easy to understand which financing solutions will be the most useful.