One of the most crucial decisions facing an entrepreneur when starting a new business is choosing the right business structure because the business structure determines the legal liability of the enterprise, its tax obligations, its ability to raise capital, and the risk level of its owner(s). Another crucial decision is how to finance the enterprise. There are similar ways to secure financing for various business structures, including financing a partnership.
The Types of Business Structures
The types of business structures are Sole Proprietorships, Partnerships, Corporations, and Limited Liability Companies (LLCs).
What is a Business Partner?
About 10% of U.S. businesses are partnerships. There are over 4.4 million partnerships in the US, with more than 30 million partners. The most recent data indicates that about 57% of all partnerships are made up of only two partners.
Compared to a sole proprietorship, a significant benefit of a business partnership is that the full weight of the enterprise doesn’t rest on one person’s shoulders. As entrepreneurs Janine Ogg and Jo Foster have stated, “Just one great partnership with the right person can have an incredible impact on your business success.” And Howard Schultz, former CEO of Starbucks has suggested, “Success is best when it’s shared.”
Partnerships can be organized in three different ways. First is a general partnership where the partners jointly run the business and have shared personal liability for the debts of the business. Second is a limited partnership in which the partners invest in the business, but not all the partners are involved in the day-to-day operations or management. And third, is a partnership with equity and salaried partners. These partners have a share in the ownership of the business and may be paid as employees of the business.
A partnership agreement in each case should identify how much cash and contributions will be made by each partner, what will be the division of profit and loss, and the responsibilities of each partner. The partners will need to determine the best means of financing a partnership.
Financing a Partnership—How Does it Work?
Securing financing is crucial for every business, and the sources for financing a partnership are not different from the financing sources for other business structures. Consider these sources for financing a partnership:
- Conventional financing from banks or credit unions. Partners that apply for conventional financing for the partnership will need to provide financial documentation for the business and their own personal financial documentation.
- SBA loans.
- Alternative loans. Alternative lenders typically offer loans without the lending restrictions and requirements imposed by conventional lenders. Their loans can be easier to acquire and more affordable than conventional loans.
- Asset-based loans. These loans will use the assets of the partners to obtain financing.
- Cash advances. These aren’t loans but simply provide an exchange of cash today for the sale of future credit cards or ACH revenue.
- Bootstrapping your partnership. This requires the self-funding of the business by the partners.
Seek Expert Business Financing Assistance
Contact CAB Capital, based in Mt. Pleasant, SC. We offer small businesses custom-matched financing solutions that can be faster or more flexible than other financing solutions. We have access to a vast suite of more than 150 products from a group of 67 different lenders to ensure you get the funds and the terms you are looking for.