Finance Available To Partnerships

Partnerships, as business structures, offer a blend of simplicity and shared responsibility. However, securing finance for growth, operations, or expansion requires understanding the options available and their implications.

Internal Financing

The first port of call is often internal financing. This includes:

• Partner Contributions: Existing partners can inject additional capital. This can be proportionate to their ownership or a negotiated agreement.
• Retained Earnings: Plowing back profits generated by the partnership is a common and relatively inexpensive form of finance.
• Reduced Drawings: Partners may agree to reduce their personal withdrawals from the business, freeing up capital for investment.

External Financing

When internal resources are insufficient, partnerships turn to external sources:

• Bank Loans: Commercial banks are a primary source of debt financing. Partnerships can apply for term loans for specific investments or lines of credit for working capital needs. Banks will assess the partnership's creditworthiness, financial performance, and the security offered. The partners' personal credit scores are also typically evaluated, as they usually provide personal guarantees.
• Small Business Administration (SBA) Loans: In the US, the SBA doesn't directly lend money but guarantees loans made by participating lenders. This reduces the lender's risk, making it easier for partnerships, particularly newer ones, to qualify. SBA loans often have more favorable terms than conventional bank loans.
• Asset-Based Lending: Partnerships can borrow against assets like accounts receivable or inventory. This type of financing is suitable for businesses with significant assets but may not qualify for traditional loans.
• Equipment Financing: If the partnership needs to acquire equipment, financing specifically for that purpose can be obtained. This typically involves a loan secured by the equipment itself.
• Venture Capital: Though less common, venture capital is an option for partnerships with high-growth potential. VC firms invest in exchange for equity, diluting partner ownership. VC investment usually comes with significant input and oversight from the investors.
• Angel Investors: Similar to venture capitalists, angel investors provide capital in exchange for equity or convertible debt. They often invest smaller amounts than VC firms and may be more willing to invest in early-stage partnerships.
• Crowdfunding: Platforms like Kickstarter or Indiegogo allow partnerships to raise capital from a large number of individuals, often in exchange for rewards or early access to products.
• Grants: Depending on the industry and specific activities, partnerships may be eligible for government or private grants. Grant funding is generally non-repayable, making it a highly desirable source of finance, but it is often competitive and restricted to specific purposes.
• Peer-to-Peer Lending: Online platforms connect borrowers with individual investors, offering an alternative to traditional bank loans.

Considerations

Before seeking any finance, partnerships should:

• Assess Funding Needs: Clearly define the purpose of the financing and the amount required.
• Develop a Business Plan: A comprehensive business plan is essential for attracting lenders and investors.
• Review Partnership Agreement: The partnership agreement should outline the process for obtaining financing and the responsibilities of each partner.
• Seek Professional Advice: Consult with an accountant or financial advisor to determine the most appropriate financing options and navigate the application process.

Securing financing is critical for the success of any partnership. By carefully considering the available options and preparing diligently, partnerships can access the capital needed to achieve their goals.