Financing Options For Your Small Business

Photo credit: Tracy Olson

ROSELAND – Where can you turn if you need to borrow money for your small business?

It’s often a good idea to take out a loan to finance an expansion or upgrade, to consolidate debts, to lower your borrowing costs or for any number of other reasons. However, in a recession, many typical cash sources become scarce.


The New Jersey Society of Certified Public Accountants (NJSCPA) offers this advice on getting funding in the current economy:

Traditional Sources
Banks are usually the first place many businesses approach for financing, but numerous lenders have tightened their requirements, making it much more difficult to get credit. CPAs recommend that you clearly state your case when applying for a bank loan. This means being armed with current and prospective financial statements and having answers to questions bankers may have about your current business challenges, including any late payments or declining sales.

Many companies also turn to the government for funding. For more information on this option, consult the U.S. Small Business Administration site at Remember, your CPA can help you prepare the information and documentation you need to improve your chances of obtaining financing from various sources.

The Personal Touch
If outside sources won’t provide the funding you need, there are several options closer to home. Many business owners turn to home equity loans, particularly when they want to finance a start-up or expansion. Keep in mind, however, that after the recent mortgage market implosion, these loans can be more difficult to obtain. Remember, too, that you are putting your home on the line if you face business setbacks, so use great caution when turning to this source for funds.

It’s important to be realistic about your ability to repay the money on a timely basis before borrowing against your home. The same is true of credit cards, which some entrepreneurs use to cover costs. This can be an expensive proposition with a high-interest-rate card. It’s also a risky choice, since your credit rating will be damaged if you’re unable to make timely repayments.

The Retirement Nest Egg
A robust retirement account can be a tempting source of funds, but CPAs strongly urge against tapping into this money, except in an absolute emergency. Retirement savings are not a good option for business start-up for a number of reasons. First, if you withdraw money from a tax-advantaged retirement account, you will likely face a steep penalty and have to pay taxes on the withdrawal amount. That makes this type of financing extremely expensive. It is possible to borrow against a retirement account in some situations, but even that is not a great idea.

Money in a retirement account is working for you by earning interest or dividends as the years go by. When you borrow money from an account, these funds can no longer do that work for you. Finally, even if you are certain that you will be able to repay the money in the future, there’s always the chance that things will not work out as planned. As such, you’ve left a big hole in your retirement nest egg, one that you may never be able to replace.

Your Local CPA Can Help
Cash flow is the lifeblood of any business, which is why financing is such an important concern for company owners. Remember that with any challenge facing your business, your local CPA can help. Turn to him or her with all of your financial questions.

If you don’t have a CPA, you can easily locate one online using the NJSCPA’s free, online Find-A-CPA service. Just go to, and in a few clicks you can locate a highly qualified professional who can assist you.

For more information on various personal financial matters, visit the NJSCPA’s public service website at While visiting, you can subscribe to Your Money Matters, the NJSCPA’s free, monthly email newsletter to receive valuable personal financial planning advice throughout the year.

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