Funding for small business formation may be easier to find

One of the biggest challenges to any Illinois small business is funding. The closing costs associated with a loan can sometimes be cost prohibitive for an owner that is already cash poor. Fortunately, lower cost funding for small business formation may become easier to find.

One new source for funding could provide loans to small businesses without the high closing costs through the use of technology institutional investors. There is an origination fee and a variety of interest rates, depending on the company. Lending Club intends to allow ordinary investors to participate in the future.

PayPal is also offering loans to businesses that use its services. Customers can borrow a percentage of their annual sales through its service. A fixed loan fee is paid, and the loan is repaid through a 15 percent withdrawal by PayPal of the business's daily sales. In the future, PayPal may offer loans to businesses that are not current customers.

Individuals conduct more of their personal business online these days. Small businesses could end up doing the same thing. The more options a small business has online, the wider the funding sources could become over time.

Several issues need to be considered when an Illinois entrepreneur considers small business formation. One of those issues is finding the money needed to start the business. With an ever broadening source of options for financing, it is more important now than at any other time for prospective business owners to understand what they are agreeing to and how the type of loan they choose could affect the business.

Source: Bloomberg Business Week, Lending Club and PayPal Offer Small Business Lending Programs, Patrick Clark, March 20, 2014

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