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Startup Business Financing: Why Diversification Is Critical
Written by Dave Lavinsky on Tuesday, November 3, 2009
This past Sunday, CIT Group Inc., the 101-year-old commercial lender, filed for bankruptcy.
This filing is NOT good for American businesses, as CIT Group funds, via providing loans and working capital, about 1 million businesses.
CIT's bankruptcy will not only prove difficult for the small and medium-sized businesses that rely on CIT's working capital loans. But, it hurts the thousands of startups who planned to approach CIT for startup business financing; with the bankruptcy, it is highly unlikely that CIT will be able to make the same number of new loans as before.
It is for reasons such as this, that I frequently preach that businesses leverage multiple forms of capital. In fact, you've probably heard me talk of companies like Google, who leveraged credit cards, angel capital, venture capital and bank loans in its early days.
One form of startup business financing is never enough. It's the classic "putting all of your eggs in one basket." In addition to the risk involved in this strategy, it is also typically less expensive to diversify your financing. For example, bank loans used for the purchasing of equipment is almost definitely less expensive than using equity financing for the same expenditure.
Personally, my favorite forms of capital are creative/alternative financing (since it is easy to raise if you know what to look for), angel financing (also easy to raise if you know how to do it) and bank financing (easy to raise if your business is a good fit for it).
I'm also a big fan of venture capital and grant financing, but these forms of capital take a little longer to raise and are more challenging (but the rewards are significant if you are successful).
To become an expert in raising each of these forms of capital, learn more with the links below:
Growthink's Definitive Guide to Creative & Alternative Financing Sources presents 28 proven creative and alternative sources of capital to fund your new or growing business.
Growthink's Step-By-Step Guide to Raising Capital from Angel Investors will guide you through the process of raising money from individual "angel" investors.
Growthink's Step by Step Guide to Raising Capital From Banks and SBA Lenders will teach you how to quickly and easily get the right SBA and/or bank loan to fund your business.
Growthink's Step-By-Step Guide to Raising Venture Capital presents our proven system for raising venture capital for your business on favorable terms.
Growthink's Step-By-Step Guide to Raising Capital from Grants will guide you through the process of winning grants to fund your business.
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