Risk in Small Business

There is always risk involved with business, especially with small business and start-ups, including risk associated with the type of financing you choose to fund your business. It’s important to know the different risks involved with different types of financing: the risks incurred with traditional financing are different than those associated with alternative financing.
 
If you already own a business or are trying to start a business, don’t rush to your bank for financing without exploring other avenues.  Traditional lenders often say no to start-ups and small businesses anyways, and even if the bank does say yes, they will most likely offer you a loan with a personal guarantee. Although the interest rate on a loan with a personal guarantee will be lower than interest rates on true business financing, a much greater amount of personal risk is taken on with that personal guarantee. Traditional financing is rarely an option for a new small company anyway, as traditional lenders such as banks focus on factors such as a business's financial history and collateral: neither of which a new business can demonstrate.

Traditional financing avenues are not your only choice for financing a business, and knowledge of alternative financing can prove an invaluable tool for the small business owner. Interest rates on alternative financing are higher than what banks charge in most cases. However, alternative financing often takes into account factors such as on the quality of your collateral and projections rather than a business’s track record. Also, by going with alternative financing, you are avoiding personally guaranteeing the loan, which hedges risk by protecting your personal assets from risk.