difference in large and small business financing options

Small business managed firms operate with levels of short term debt which are higher as compared to those in large business managed firms.  This position holds true

Access to capital determines whether a neophyte/beginner enterprise prospers or dies at the infancy or when it has just started.  There are differences in large and small business financing options which includes the following among others:

Venture Capital and Angel Investors

Venture capital is usually common to large businesses. Venture capitalists have very rigid investment criteria and specialize in specific high growth companies. They usually shy away from very new businesses.  Accepting a venture capital leads to loss of control and independence because venture capitalists take an active role on the company’s board and may push a specific strategic agenda.

Angel investors

Financing option is mostly common to small businesses.  Angel investors can invest in small businesses as well as large businesses. The advantage of Angel investors is that there is no dilution of control and independence as compared to venture capitalists.

Home Equity loans

Home equity loans are a cost effective option of obtaining small business finance because the interest rates offered are usually reasonable.  However, before considering this type of option it is advisable to carefully consider the challenges involved.  You may not want to risk your family home to launch your business venture.

Equipment Leasing

This is an option for many small businesses.  This option allows the business to access to many types of equipment including fax machines, cars, trucks, copiers and computers. Although it does not bring in cash it reduces the amount of cash you have to raise for initial or progressive finance.  Leasing has however proven to be more costly than buying in the long run but should be considered if cash flow is an issue for the business.

Credit cards

Cash advances from credit cards are an easy and quick way of obtaining finance as a short term method for small businesses.  This option may not be very appropriate for financing of large businesses, especially long term. This is because the interest rate tends to increase in the long run as compared to the short run.

Debt Financing

Majority of new small businesses are financed by loans from financial institutions.  Commercial banks can provide a line of credit or loan that comes with a repayment schedule and an interest rate. However, they will look at your company cash flow, collateral, liquidity of assets and a good business plan. It however advisable to establish a good relationship with the bank before you apply for the loan as this will open your chances of getting more.

Advantages:

1. It is easily available to companies that cannot get equity funding easily; and
2. It is not a requirement to give equity.

Challenge:

1. You are required to pay interest; and
2. May require collateral especially in large business firms.

Most common options of large business are:

Government loans

Government loans and incentives are available at very low interest rates as compared to the other options of financing. The challenges in this option are that it is a lengthy process and requires a person to prove that you are actually in need.

Commercial Bills

This can be the best answer when you need a significant injection of funds.  It mostly used large business firms.  Normal terms are from 7 -180 days with a fixed or varying interest rate. Bills are of two types: floating rate bill and fixed rate bill. The interest rate varies in floating rate bill while it constant in fixed rate bill.

Reference:

1. http://www.allbusiness.com/finance/895-1.html
2. Finding Funding Thats Right
3. http://www.answers.com/topic/floating-rate-note