April 5, 2016
All types of businesses require cash. Whether you own a small local enterprise or are running an international firm, you will need ready money to ensure smooth operations every day. However, immediate expansion of your business may call for additional funding – something that may NOT be available to you at once.
Although there are friends or family to financially lend a hand, these could be tricky because it could affect your personal relationships with them in the long run. Investors on the other hand, would require part of your company should you decide to accept their offer.
So for business owners looking for quick funding – but don’t want to share ownership of their enterprise – let these six resources provide the needed cash for your growth.
Crowdfunding can be tapped into if you need fast cash to expand your enterprise. But it’s not as easy as it sounds. Business owners need a compelling story in order to draw in a crowd. Unlike angel investors though, funders don’t necessarily expect anything in return (except perhaps first dibs on your product or service once it comes out).
Expertise in reaching out to a wider audience (usually through social media) is necessary for this strategy. Make sure you check your local laws about crowdfunding, as well as create a solid marketing plan in order to win a lot of funders. To kickstart your campaign, check out sites like Kickstarter or Indiegogo.
2. Sales and Discounts
If you need to buy new equipment or fund a new product right away, don’t neglect money from your customers. A big sale can quickly turn in needed cash. It’s also a good way of eliminating excess or old inventory. For service-based businesses, you can collect early from regular clients by offering discounts.
3. Bank Loans
As long as a business is qualified, there are several loan options available from banks and certified lenders. The most common of which is business line of credit. This is by far the easiest to obtain, and works like a credit card. For example: if you’ve been granted $60,000 line of credit and you only take out $20,000, you can still take out $40,000 anytime you need it. However, this type of funding may require collateral and could end up with high interest rates if you have low credit score.
For larger amounts of cash, you may need a term loan, which has fixed interest rates and is paid every month for a period of years (depending on the sum you acquired).
Small businesses that can’t qualify for a traditional loan may seek an SBA loan, which is perfect if you want to expand your venture. There are different types of SBA loan, such as the basic loan program, Certified Development Company (CDC) 504 Loan, and the Microloan.
Although bank loans are the most popular and secure form of getting the cash businesses need, the downside is waiting time. After your application – even if you have all required documents – processing can take anywhere from two months or more. Be prepared to apply in advance to ensure you get the money you need on time.
What if you don’t qualify for any bank loans but need cash fast? For businesses with plenty of outstanding invoices, factoring may the best solution for you. Unlike bank loans, this method doesn’t involve long waiting times or strict application requirements. Big retail companies such as clothing stores, typically take advantage of factoring because they have a lot of receivables year round.
When considering this strategy, there are two main things you need to remember. First, make sure your business is right for factoring. Firms that have the following characteristics are advised NOT to get into this type of financing:
- Have long-term contracts
- Work in industries with plenty of dispute over quality
- Have small turnover; or
- Lack debt collection.
Second, is your choice of factoring agency. Watch out for other fees and penalties, which you may overlook if you don’t read the fine print in the contract. Once you determine if your business is suitable for factoring, carefully research reputable companies to help with your funding.
5. Government Funding Programs
This is a long shot, but if your business is in a sector that involves research and development (i.e. medical research or conservation), then you might be eligible for Small Business Innovation Research (SBIR) Program. This program gives a small amount of money to eligible businesses to help boost innovation. Visit their blog for more information on how it works and how you can apply.
6. ROBS (Rollovers as Business Startups) Program
Looking to expand your business by buying another small firm? You can use your tax-deferred retirement funds to make this possible. Referred to as Rollovers as Business Startups program, it allows business owners to fund company operations or purchase another enterprise without incurring early withdrawal fees.
The upside of this high-risk technique is that an ROBS is NOT a loan: so there’s no debt or interest. Plus, if your plan fails, it won’t affect your personal line of credit.
However, be very careful when utilizing ROBS. If not implemented properly, you could pay hefty back taxes or penalties because you didn’t read the fine print. Another huge downside is, in order to take full advantage of this program, an entrepreneur needs to have about $50,000 in retirement. That’s typically not something most young business owners have at the moment.
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