Guest post by Mathew Jade.
Running a small business has more than its fair share of risks. Clients can be late in paying. Competition is fierce, and as more and more people start their own businesses or try to make few extra dollars in the gig economy, it just gets tougher.
You can hit a surprise slowdown in business due to holidays, sudden shift in economic trends or expectations, changes in government policy, the loss of a large customer, or any of a hundred different reasons. Sometimes, deals you expect to close instead evaporate. You may need to spend effort and resources on business development activities with a highly uncertain return.
Cash flow is frequently one of the major problems for small to midsized businesses. Businesses may need fast cash in order to take advantage of an opportunity or simply to fund growth ahead of revenue.
Your business may need extra cash for any of a range of reasons. Maybe you want to open another branch, or you have to do special product development for a large sale, or you need to build up inventory to meet a surge in demand. Maybe you have to buy equipment, pay for software, host a marketing event…the list could go on and on.
At these times, you need financial help. Banks and credit cards have been the traditional go-to options, but there are a number of other potential sources of cash for startups and small businesses.
Here are some tips if you are looking for short term business loans or equity funding.
Merchant Cash Advance
If you are looking for immediate cash that you can get upfront without collateral, then a merchant cash advance may be your solution. You get this advance in exchange for a fixed percentage of your daily revenue.
You have to pay this daily retrieval rate until you have repaid the loan plus any fees included. The fee is determined by your factor rate. Whether your credit is good or bad doesn’t affect the outcome.
You can always go for crowdfunding. There are various sites like GoFundMe that help you raise the funds you need from your network of friends and followers. Although it can be a good option, it may take some time. If you need an immediate infusion of capital, this might not be your best choice.
As a tech company founder, you’re always looking to upgrade your office equipment or buy new devices or gadgets for your employees. Being tech-savvy is not a luxury for you, it is a necessity.
With equipment financing, you can purchase or rent any kind of physical assets. Whether it’s new routers to boost your WiFi speed, iPads for your employees, or a company car, anything can be covered in this loan. Equipment financing has a lot of options related to specific businesses and the equipment they might need.
Angels are individual investors who invest, sometimes on their own, other times as part of a group, in early stage businesses. You may be able to find them through your network of contacts, or through your financial consultants, attorneys, or business advisors.
You will have to present a solid business plan for them to review. If they are intrigued by your presentation, they may offer an investment—or at least advice.
Line of Credit (LOC)
You can get a LOC either through a bank or from an online lender. Online lenders are often easier to contact, with simpler and faster application processes. Basically, it’s a business credit card (sort of).
Your LOC is your safety net or a source of working capital. You are given access to a sum of money from your lender. You can use your LOC and draw cash at any time that you want. You will only have to pay interest on the amount that you have drawn.
If you don’t know exactly how much money you’re going to need and when you’ll need it, you just want some extra cash that you can easily get at, a LOC is your best option.
Small Business Administration (SBA) loans are backed by the US government. They are a great alternative to traditional bank loans. You can even acquire an SBA loan online.
What’s vital to understand is that the SBA does not provide the loan. They issue a guarantee for a portion of the loan that is made by a bank or other lender. If the loan is defaulted on for any reason, the SBA will repay the portion they guaranteed. This results in lower interest rates from the banks.
This is a type of financing that frees up cash from your outstanding invoices. The invoice factoring company purchases some of your invoices that are yet to be paid. They provide you with cash that is a percentage of the invoice they have purchased.
They then collect payment from your customers and send you the remaining amounts on the invoices minus a mutually agreed upon fee. If you have cash flow problems due to unpaid invoices, invoice factoring might just be your solution.
A Final Word of Advice
Keep your expenses to a minimum so you can take full advantage of cash on hand. barter for services when practical. Also, the better your credit score is, the more financing options you will have, so start improving your credit score today.
Mathew Jade is a business, finance and technology blogger who spends his entire day writing quality blogs. He is a passionate reader and loves to share quality content prevalent on the web with his friends and followers and keeping a keen eye on latest trends and news in those industries. For more updates follow his on Twitter @Mathew Jade