Usually big companies have a number of options to finance capital for running their business. They can use methods like selling stocks, getting bank loans easily, issuing bonds, accounts receivable financing etc. But it becomes difficult for small companies that have annual revenues of $20,000 to $600,000 to finance working capital for their business to run properly.

It is because of the lack of capital that many small businesses could not function properly and capitalize on many of the opportunities. It is very common that small companies usually reject deals from bigger companies because of the lack of capital to get the resources required to complete the work. Besides this even though the small businesses would complete the contract but they are not paid immediately. In most of the contracts the supplier would provide at least a month or two for the customer to pay their invoices, which would actually mean that they are forcing the customer to extend the supplier credit.

Most of these issues could be solved if the company had enough working capital to meet the needs. With the help of working capital the business would be able to recruit more employees and get better resources to meet the needs of the client. Besides this the presence of a working capital in time could increase the ability of the company to extend the payment terms of their customers to 30 to 60 days

Let us look at some of the sources from where small businesses can arrange for a working capital

Venture Capital: venture capital is a good finance option for small businesses, which have an experienced management team and are determined about their growth plans. But the problem with venture capitalists is that they would not invest readily in small businesses because they rarely have any publicity. The

aim of the venture capitalist is to invest in a company for a short duration of time like 5 years and then make money from the business.

Angel investors: groups of wealthy people or an individual who invest in pre-venture capital companies are called as angel investors. This means that companies that do not at present meet the requirements of a venture capital but if proper finance and management is provided then they can easily meet the criteria. You should keep the option of angel investors open because they aim at the growth of certain communities. You can easily find an angel investor on the Internet.

Banks: usually small businesses approach their banks for obtaining a loan but the banks would offer the loan only if the business has been functioning for quite some years. The business is required to produce financial records, show substantial assets etc. However, the banks can provide a working line of credit if the business owner would guarantee it personally. The working line of credit provides the business owner with the necessary capital required at any point but this option can be risky at times when the business does not give in the results as expected. This method of financing should be used cautiously.

Credit cards: there are a number of businesses that use credit cards to fund their businesses with the help of credit cards the business entrepreneur can get cash advances and they can pay them off later. But despite this the option of credit cards can be an expensive deal. Most of the credit cards would have a low interest rate for purchasing but the cash advance rates can go up to 17% because of the higher delinquency rates. Besides this most of the credit cards charge a face value of 2-4%.

Home equity line of credit: small business owners that have their own houses can use the equity of their house to get finance for financing their business. With the help of home equity loans and home equity line of credit people can have various advantages like low interest rates, tax deductions, flexible terms of payments and longer payment duration. But with these loans if the borrower is unable to pay the loan amount on time then he can lose his property.

Small Business Administration: the US SBA provides a number of options to people who want finances for their business operations. This organization guarantees the finances for people and hence does not directly provide any finance. The interest rates however are higher than the traditional banks but the terms of payments and the qualification criteria are quite flexible.

Friends and Family: people can also look up to friends and family for getting finance for their small business. If you have good relations with your friends and family members then you can always consider borrowing money from them but you should keep in mind that this money is to be returned and hence you should sign a deal with tem also just like a loan term.

Accounts receivable factoring: When you opt for factoring as a means of finance you should be prepared with all the documents and the accounts of the company. The factoring company would bother more about the payment practices of your customers as compared to yours and hence you are required to be prepared with the financial statements, a certificate of incorporation, or a partnership agreement, an accounts receivable aging report, the proof of insurance and the invoices and the various required business documents. Since the company takes the responsibility of collecting your receivables they would want to assure themselves that your customers make their payments on time.

Arranging for working capital for a small business is as essential as arranging for new contracts for the business.