Whether it's due to a seasonal slump, a customer not paying his invoice or some other bit of bad luck, at some point or other many small-business owners find themselves short on cash, unable to make payroll or fulfill another financial obligation. It's not all that uncommon. If you find yourself in this situation, what should you do?
First, sit down and objectively look at all the sources available to you. Most of us have more options for raising money than we think. Second, look to the financial institutions and service providers you already do business with. New programs get implemented all the time and something just right for your business may have just gotten started.
Let's look at 10 ways you can raise cash fast. Remember, some of the following options may seem expensive, unrealistic for your purposes or require a compromise you're not willing to make. For money matters, you need to weigh all the factors carefully before deciding what is right for you.
1. Business Cash Advances
A number of merchant account companies and digital payment-solution providers offer advances against future credit card sales receipts. Traditionally known as “merchant cash advance,” it used to have a reputation for being an expensive way to raise money.
But today’s programs may offer more attractive terms, and may be hybrid programs that go under names such as “working capital loan” or “line of credit.” Your business is advanced the money, and you repay it from a portion of your future sales. You pay a fee for the advance, of course. The application process may be expedited and involve little paperwork. In fact, you may be able to apply online in a matter of minutes.
2. Deferred Card Payments
Charge card and credit card companies, as well as some electronic payment solution companies, may offer deferred payment options.
3. Loans From Online Loan Sites
Your local bank may be the first financial institution you think of for a loan, but there are a growing number of loan aggregator websites that provide a single platform to submit your application and loan documentation. Some claim to give loan decisions in hours or days, versus the weeks it may take the loan committee at your local bank.
Crowdfunding is one of the trendiest concepts out there in raising funds today. Essentially it’s a way you can raise money from individual investors; however, it's a rather broad term that encompasses several different types of funding from different sources.
Options include sites like Kickstarter and Indiegogo, where the focus is on raising money from regular citizens to fund startup projects or new products—an attractive option when you need expansion cash. In exchange for the investment, investors may be the first to receive the product or they receive something else from you. It can work for anyone in anyone industry: Even authors have used crowdfunding sites to raise money to self-publish new books, whereas they probably would find it difficult to get a traditional loan to fund a book.
Still other options include raising equity or debt funding from angel investors, venture capital firms and accredited investors. Sites like Fundable specialize in funding main-street small businesses, while sites like MicroVentures are venture capital investment banks marrying venture investors with high-tech startups.
Microloans are a specific category of small loan—usually under $50,000—that are often easier and faster to get than traditional loans. Groups like Accion specialize in providing small loans up to $25,000 to startups and small businesses that may not have access to funding. For instance, Accion has a microloan program specifically for day-care businesses and another for food and beverage businesses.
The Small Business Administration has a microloan program, which uses 150 approved microlenders. The program can provide up to $50,000, and you can find a microlender through your local SBA office. Another option is Kiva Zip, where borrowers can raise microloans from the community.
6. Factor Invoices
Factoring isn’t for every business, but if your business has large outstanding invoices or receivables where the customer pays slowly, factoring can speed up the collection cycle. You find a factor to assign the invoice over to. You receive the full amount of the invoice, less the factor’s fee, which can be hefty, ranging up to 10 pecent of the invoice amount. But if you need cash to make payroll next week, getting 90 percent of your invoice paid immediately rather than waiting 60 days for the full amount may be an acceptable cost of doing business for you.
7. Credit From Vendors
Vendors may be willing to offer extended repayment terms to good customers.
Some even have their own financing programs or terms, such as “pay on scan” programs where retailers pay suppliers for inventory only when that inventory is sold to the end customer. Carrying costs are reduced or eliminated, and other efficiencies may also be realized that in the long run can lead to lower operational costs and higher sales. You may also be able to negotiate extended repayment terms on a case by case basis.
8. Sales and Annual Discounts
Don’t overlook customers as a source of quick funds. Holding a big sale is a time-tested way of raising cash. But you don’t need to be in retail to take advantage. If you’re a professional services company, you can always offer a discount for customers who pay quarterly or annually in advance, or who renew early. For example, one IT consultant we used to use in my company would regularly call to offer a 5 percent discount if we paid our hosting fee in advance annually.
9. Home Equity Loans
You wouldn’t be the first business owner to tap into a home equity line of credit on your personal residence to get through a rough patch in your business. If you have equity, and your business is otherwise solid, it is often one of the fastest and easiest sources of funds. Some successful small businesses have been built based on home equity. However, other business owners consider using home equity risky, because it puts the family castle potentially at risk.
10. ROBS Programs on Your 401(k)
A ROBS (Rollovers as Business Startups) program is a perfectly legal type of program where a business owner takes his or her tax-deferred retirement funds and uses them to start or buy a business or franchise, without incurring early withdrawal penalties. Before you get too excited about ROBs programs, however, know that there are some downsides. The IRS has issued cautions about these programs, and it's all too easy to overlook some of the complex rules of these programs. Unless ROBS are handled absolutely, 100 percent correctly, you could end up owing back taxes and expensive penalties.
In conclusion, when you need money fast, the best thing you can do is take a deep breath, and examine all your options objectively to make the best decision possible for your circumstances.
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