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What Every Business Owner Needs to Know About Buy-Sell Agreements
Learn how buy-sell agreements can support smooth business transitions, reduce conflict, and align ownership changes with your long-term planning...
Explore business financing options and learn strategies to help manage debt risk, cash flow, and capital planning for long-term growth. Explore business planning services from EP Wealth.
How to Finance a Business While Minimizing Debt Risks
Whether launching a new venture or expanding an existing operation, business owners often face complex decisions about how to fund operations without taking on excessive financial risk.
From traditional lending options to creative financing strategies, understanding your choices and evaluating their long-term implications is key. Business owners can also receive guidance from outside support—business planning services from EP Wealth can help align funding decisions with broader financial goals.
Financing Options to Consider
Finding the right mix of financing depends on a company’s stage, industry, cash flow, and growth projections. Below is a breakdown of conventional and alternative options that business owners may explore.
Conventional Financing Methods
Traditional Bank Loans
Bank loans offer structured terms, relatively predictable repayment schedules, and competitive interest rates for qualified borrowers. However, they often come with stringent credit requirements, including a detailed business plan and financial history.
SBA Loan Programs
Backed by the U.S. Small Business Administration, SBA loans are designed to make capital more accessible for small businesses. These loans can be appealing due to longer repayment terms and lower down payments, though the approval process can be time-consuming and paperwork-intensive.
Angel Investors
Angel investors are individuals who invest their own capital in early-stage companies in exchange for equity. In addition to funding, they may offer guidance or connections—but they typically expect a return through business growth or eventual sale.
Venture Capital
Venture capital firms provide funding to businesses with high growth potential, often in exchange for a significant ownership stake. This route is generally suited for companies in fast-scaling sectors and may involve giving up a degree of control.
Alternative Financing Methods
Crowdfunding Opportunities
Crowdfunding platforms allow businesses to raise money from a large number of contributors—often future customers—without relying on institutional capital. This can be particularly effective for consumer-facing products with strong market appeal.
Revenue-Based Financing
In this model, investors provide capital in exchange for a percentage of ongoing revenue. Repayments fluctuate with earnings, which can support cash flow flexibility, though total repayment costs may be higher than traditional loans.
Debt Risk Management Strategies
Taking on financing brings inherent risk. A few fundamental practices can help business owners assess and potentially reduce that exposure:
Exploring Alternative Funding Approaches
Not all funding needs require traditional loans or outside investors. Depending on the business model, alternative strategies may provide needed capital while limiting long-term obligations.
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- Equipment Leasing
Rather than purchasing equipment outright, leasing allows businesses to conserve capital and maintain access to up-to-date technology. - Invoice Factoring
By selling accounts receivable to a third party at a discount, businesses can access immediate funds without taking on new debt. - Purchase Order Financing
This option enables businesses to pay suppliers based on confirmed customer orders, supporting production without upfront cash. - Trade Credit Optimization
Negotiating longer payment terms with vendors can improve liquidity by extending the time available to generate revenue from purchased goods. - Customer Prepayments
Some companies structure contracts that include partial or full payment before service delivery, reducing the need for external financing. - Strategic Partnerships
Collaborations with other businesses can provide access to capital, resources, or distribution channels in exchange for shared responsibilities or revenue participation.
Cash Flow Management Techniques
Effective financing isn’t only about acquiring capital—it also involves managing day-to-day resources in a way that supports financial flexibility. Working capital oversight plays a key role; regularly reviewing short-term assets and liabilities can help the business maintain enough liquidity to operate effectively. Improving inventory management by avoiding overstocking and streamlining procurement processes may free up cash tied up in unsold goods.
Strong accounts receivable strategies—such as structured follow-ups or early payment incentives—can help accelerate collections and support more consistent cash flow. Business owners might also benefit from payment term negotiations, working with suppliers to adjust due dates and create additional flexibility during tighter periods.
Finally, building financial reserves by allocating a portion of profits for future use may offer support during unexpected shortfalls or create room to pursue new opportunities as they arise.
Planning for Sustainable Growth
As a business scales, its financing strategy should evolve to align with long-term goals. Here are a few planning elements to keep in mind:
Scalability Planning
Evaluating how current operations and capital structures can accommodate future growth helps identify whether additional investment is necessary, or if existing resources can be stretched further.
Capital Requirement Projections
Forecasting future capital needs—such as hiring, new locations, or product development—can support more informed decisions when exploring funding options.
Exit Strategy Alignment
Whether the goal is acquisition, generational transfer, or an IPO, each path has implications for how the business should be funded and structured.
Reinvestment Strategies
Business owners may consider reinvesting profits in areas such as marketing, talent acquisition, or product innovation to support organic growth.
Market Timing Factors
External conditions such as interest rate trends or economic cycles can influence both borrowing costs and investor sentiment. Factoring these elements into funding decisions may help support longer-term planning.
Align Financing Decisions With Long-Term Business Goals
Funding a business involves more than securing capital—it’s about selecting a strategy that aligns with your goals, risk tolerance, and operational realities. By exploring a variety of financing options and focusing on strategic debt management, business owners can make informed decisions that support their long-term objectives.
EP Wealth Advisors can assist business owners with evaluating financing opportunities and developing a roadmap tailored to your company's unique needs. Contact us to learn more.
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- EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
- Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
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- Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
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