Money is always an issue for small businesses, especially when starting out. However, the need for cash injections can continue long after you get that first dollar. Even same industry businesses can differ greatly, but they all have in common the need for money as well as the places they can go to get it. Here is a look at seven opportunities to get cash for your small business.
Small Business Loan
Probably the most known source for small business cash is the small business loan. This most often comes from a bank or the SBA; for startup capital or an expansion. The lender looking at your proposal needs to feel that you are a good investment and you can help them decide in your favor. Wherever you go to get the loan, there are several things you will need in order to give your business its best chance to get that loan.
Your business plan will tell the lender about your business and you. They will see how much planning you have done, your grasp of the industry, and how effective the loan will be.
A good cash flow projection tells the lender not only how you will pay them back, but when. Your best bet is to show hard, but honest numbers.
Your personal financial statement helps the lender to understand where you are coming from and where exactly your business is at. After all, you’re tied to your business at the hip.
Bring past business tax returns if you have them. It will show the lender how your business has done and how you have managed money in the past.
Your credit rating is key for establishing trust. The lender may be giving money to your business, but they are forming a pact with you. A credit report will fill in the rest of the details of who they are about to trust with their money.
From the SBA, the microloan program may be a perfect fit for your current financial needs. With a maximum of $35,000, a microloan can be less daunting to acquire, if not a little easier than a small business loan. The most common use for a microloan is short-term working capital and equipment purchases. Since most microloans require collateral of some kind, the best use is probably equipment, since the equipment can then be the collateral.
While this source of income may not work with all businesses, it is ideal for manufacturers and retailers. A supplier makes money by you buying their products, but if you can’t first buy their products to make yours, they lose a sale. If you cannot be billed – net 30 days – or if it may take longer to receive your money, it is possible to work out a deal with your suppliers. An ideal situation is to procure credit out to sixty days. If that isn’t possible, maybe they will take a percentage of the sales of the end product on top of the cost of the supplies. This temporary solution could generate higher interest than a loan, but in some situations, it could be your only choice.
Best in times of growth, angel investors can be a boon to help a small business get over the hump to where they need to be. Angel investor loans fill the space left after you’ve gotten your small business loan and other capital. Unfortunately, they are few and far between and spending too much time looking for them can be even more detrimental to your business than cash problems. The best time to look for an angel investor is when you already have growth, you’re approaching the breakeven point, or you’re expanding. The worst time is when you’re hemorrhaging money. Take care, you still have your business to run. Plan to spend four to six months looking for an angel investor, but use only a quarter of your time. Like getting a small business loan, be ready with all that proof that you are worthy of an angel’s blessing.
It’s a source of quick, red-tape free cash, but credit card cash advances can eventually kill your business if you’re not careful. Always keep in mind the high interest charges when you are looking at credit cards as a cash source. Use them, but only for quick-turnaround, time-sensitive, and/or small scale solutions. Treat credit card advances like you would a fire; it’s great for quick warm ups, but really hurts if you leave your hand in there too long.
Home Equity Loans
Like credit card advances, a home equity loan for your business is a personal risk solution. They are more attractive however, because of their lower interest rates. The catch is that if things go south, you lose your home. Depending on how personally invested you are in your business, this may not be such a different outcome from credit card advances, or even small business loans if calamity strikes. The main thing to remember when considering the bad side of a home equity loan is that due to consumer protection laws, it’s a much longer process to seize your house than it is from a normal bank loan.
Family or Friends
Nothing ruins a friendship or splits a family faster than money problems. When you are considering approaching the people you are closest to, you must know the best way to handle the situation, as well as the potential pitfalls. Some common relationship killers due to business loans is the recipient squanders the money, doesn’t use the money as indicated, doesn’t pay the money back, or doesn’t pay it back in a timely or agreed upon manner. If you can avoid those situations, you’re way ahead of the game. The best course for loans with friends and family is to handle it as professionally as a bank loan, or even more so. Make sure there is a formal agreement with signed paperwork stipulating how much is to be loaned, collateral, interest rate, how it is to be repaid, and what happens if it cannot be repaid. If you spell out everything on paper, there is no room for disaster due to misunderstandings. Remember always: these people trust and believe in you… don’t make them regret it!