No matter what type of business you own, there will come a time when you are going to need a fast infusion of cash. Whether you need it to expand your business, help out with debt or purchase equipment, there could be many reasons for a business to require quick access to funds.
In this day and age, finding the kind of help that you need is a bit challenging. There are a lot of options and most people do not have the financial background to know which one is best. Here we have compiled a list of financing options and their features so that you can make an informed decision to help stabilize your business.
The business line of credit
If your business faces frequent cash shortfalls and lands itself it a cash crunch every now and then, a business line of credit is an effective way to ensure your survival. This is a credit facility that lets you withdraw a certain lump-sum amount any time you need it – interest is only charged when the facility is used and there is no cost at other times.
Although it can be an expensive financing option, it is very useful for businesses operating in highly volatile markets that just can’t produce reliable cash flow forecasts to determine their future fund requirements. If you are looking for the best business line of credit, you can check both your local bank and online lenders.
If you haven’t considered factoring yet for your business, it’s time that you should. Factoring is a method whereby any company, whether it’s a start-up or a huge organization, can sell some of its receivables at a discounted price so that they can get cash instantly.
The factor usually advances a pre-decided percentage of the total amount of receivables, and the remaining (minus their fee) after the customer pays. For businesses that have a difficult time recovering their receivables on time, it is a great option to stabilize their working capital. It is a bit expensive, but it gets you the cash you need when you need it.
2. Bank Loan
A bank loan usually comes with tough eligibility criteria. You have to make sure that your credit score is excellent and that you have been in business for two years for most loans. The lending rules and regulations today are stricter than ever. But some of the bigger banks are trying to make bank loans easy for small businesses. So, you can keep this option open and give it a try as well.
3. Credit Card
Although a credit card provides quick cash at the business’ time of need, it must be used responsibly or else the business could find itself in major trouble. If you pile up more debt than you can afford, not only will your credit scores take a major hit, but you could also expect a fall that can easily compare to Alice’s fall down the rabbit hole – you might never get out from the mess.
This happens when you keep using your credit card and only make minimum payments every month. The interest keeps adding up, until the business finds that it can no longer afford to pay it, resulting in a severe financial crisis.
4. SBA Loan
After the credit crisis, banks have become very reluctant in lending money to businesses. This has really built up the importance of loans that are guaranteed by the U.S. Small Business Administration. Loans that are backed by the SBA are all the rage nowadays. The SBA doesn’t hand out loans, it just guarantees the loans.
Any business can apply for an SBA backed loan, although there is some qualification criterion that must be met. One of the requirements is that your company can only apply for an SBA backed loan if you cannot obtain a loan otherwise.
Additionally, the government has a definition of what a small business is. Your company should fall under that category. There are also other criteria that your business has to follow depending on the type of loan that you are going for.
5. Contact Your Family and Friends
This is one of the most common ways for start-ups and small businesses to come up with the cash they are looking for, but there are pros and cons to it. Your family and friends are always there for you and are unlikely to let you down in your hour of need when you ask them for a loan. They probably won’t have to pay any fee on the loan either.
The cons are that you might be jeopardizing your relationships for the sake of financial assistance. In order for this option to work, make sure that you have an ironclad plan before approaching anyone.
Microloans are smaller sized loans with flexible qualification criteria, designed to help small businesses grow. While most banks are not too keen on offering them as they are too small to be worth the effort, there are a lot of alternative lenders that provide microloans.
A microloan is a much easier way to secure funding than a traditional bank loan. These loans require less documentation than other loans and often do not need any collateral. They also tend to have better interest rates.
Whether you are a start-up or an existing business that is facing a gap in finances or needs the capital to increase their workforce or acquire new equipment, microloans are an attractive option for you.
A fun and effective way of raising cash for your business is through crowdfunding. There are several websites where you can register and ask the general public to help you raise money for your business idea. You just need to have a realistic goal about how much money you want to raise and different individuals will make contributions to help you achieve that goal.
Crowdfunding websites have helped thousands of entrepreneurs raise the money that they were looking for. Just keep in mind that it is not a source of long term finance, but a one-time funding option instead.
All these financing methods are good ways to stabilize your business by providing it the finance it needs to survive and thrive. Choose one that best suits your needs and you won’t go wrong. Good luck!