The financing provides businesses of all sizes with the cash flow necessary to grow, expand, and succeed. However, myriad factors can affect your ability to obtain financing. One that you might not realize is your corporate structure. The right business formation can have a positive effect on your ability to obtain financing, while the wrong one can short-change you.
- Sole Proprietorship – As the simplest of all business formations, this is also the least favorable when it comes to financing because lenders will base their decision on your personal credit history and score. You will also need to commit personal resources to the financing process. Venture capital is not available for these business types, and angel investors usually do not work with them, either.
- Partnerships – This corporate structure is a bit better for financing than sole proprietorships. They also have a greater focus on business credit history than personal credit and have access to things like equity financing.
- Corporations – Whether you go with an S corp or a C corp, you’ll find it easier to obtain some types of financing, particularly business credit cards. Venture capitalist and angel investors are also viable choices for financing.
- LLC – The single most popular corporate structure in the US is the limited liability company or LLC. It offers the benefits of an S corp formation, combined with the way partnerships are taxed. There are numerous financing options out there for LLCs, as well, although venture capital is usually not a possibility due to the taxation considerations.
