November 6, 2017
No matter how carefully you plan, in the early stages of your startup, cash flow is going to be tight. If you’ve planned correctly, you’ll be minimizing expenses and working with only the capital you need to make it through the early stages. And for most startups, those early stages are going to be devoid of revenue, or operating with only a minimal stream of income.
Eventually, you’ll likely run into a situation where you barely scrape by—or where you see a possibility of a cash shortfall.
So what can you do to prevent this shortfall from affecting your business? Here are 7 options when you’re facing a cashflow shortage.
Consider an Online Loan
If you know this is a temporary shortage and you’ll have the money in a short period of time, you can consider getting an online loan. Providers like Rise Credit, Avant, and LoanatLast can provide you with cash within a few days, under almost any circumstances. These loans tend to carry high interest rates, but if you pay them off quickly, they can be a convenient and reliable way to get through your cash shortage.
Secure a Line of Credit
Your next option is to get a floating line of credit, which you can tap into for this cash shortage, as well as future cash shortages. The approval process is longer, and you’ll be faced with more options, so it’s not as fast as the online loan alternative, but it is a better long-term fix. Sites like Fundera make it easy to compare offers from different providers for business lines of credit, so you can choose the loan amount, interest rate, and terms and conditions that work best for you.
Seek More Investment Funding
If your startup has relied on investment funding to generate early momentum, you can consider seeking more funding from your primary investors to get you through this hurdle. In some cases, that may mean forfeiting a portion of your equity, so it isn’t the best option in all situations, but it could be a reliable fallback if you have some contacts in the angel investing or venture capital community.
Draw on Personal Credit
If your business is new, it probably won’t have much of a credit history or stream of revenue for banks to review; therefore, it might be difficult to get a line of credit or loan for your business. As a riskier alternative, if you have good credit, you could seek a personal loan to fund your business temporarily. Be careful not to overextend your own personal finances.
Ask Employees to Delay Payment
Your employees are your business’s most important assets. It’s important to value their efforts and make them feel appreciated, but in extreme cases, it may be appropriate to broach the subject of delaying payments. Payroll is a big expense for your company, and if you can delay it for just one week, it may be enough to help you get by; just be careful not to make this request routinely, and show compassion and understanding when making the ask.
If you’re developing a product, or are launching a new wing of your business, you may consider crowdfunding the effort. Depending on which platform you use, there may be harsh restrictions on what you can and can’t crowdfund, so do your research ahead of time and choose the platform that best fits your needs.
Ask Close Family and Friends
As a measure of last resort, you could ask your friends or family members for a bit of cash to help you get by—especially if you know you’ll be able to pay them back in a relatively quick manner. Alternatively, you could offer them a small stake in the company in exchange for their contribution. Just try not to put too much pressure on them—you don’t want to jeopardize your personal relationships for the sake of your business.
Money is necessarily tight in a startup, these few options could keep you afloat as you start seeing a more consistent stream of revenue.
Find more tips on managing cashflow on TechCo
Did you like this article?
Get more delivered to your inbox just like it!
Sorry about that. Try these articles instead!