Trying to grow your business, but struggling with cash flow?
Whether you’re funding a new business or trying to keep the ball rolling, you’re likely to need infusions of cash to make things work. Roughly half of all small business fail in the first five years, and a whopping 82 percent of those failures are due to lack of working capital or cash flow issues. If you want to be part of the half that succeed, learning to raise the capital you need is vital. Here are nine primary sources successful businesses use.
1. Crowdfunding
Platforms like Kickstarter have changed the startup capital game forever. If you have a creative idea and know how to generate excitement about it, you can use crowdfunding platforms to gather capital that you don’t have to repay. Successful crowdfunders use videos and photos to attract funders, who get first dibs on the new product and other creative perks in exchange for their cash. Crowdfunding is a specialized skill, but if you learn how to do it well, you can raise funds and test the market for your idea at the same time. This approach works best for innovative products or any creative idea that serves a niche market.
2. Accounts Receivable Financing
Sometimes a cash crunch occurs because customers are slow to pay their invoices, or because a company has landed a large contract and now has the expense of delivering the product or service but is not able to collect from the client right away.
Accounts receivable financing offers several benefits to business owners, one of which is short-term capital to cover immediate expenses. Accounts receivable financing is also fast, allowing business owners to receive funds in just 24 to 48 hours. In comparison, it takes a minimum of 60 to 90 days to acquire a traditional bank loan. Another benefit of accounts receivable financing is the simple fact that business owners don’t have to collect payments from customers on outstanding invoices. You can make those unpaid invoices work for you by working with a factoring company.
Related: 10 Considerations When Selecting the Best Factoring Company for Your Business
3. Borrowing Against a Contract
If you’ve recently signed a big customer or several but don’t have the resources to deliver all the products and services, you may want to consider taking those contracts to the bank. Lenders are accustomed to seeing this kind of cash flow issue in a growing company and they often have programs to assist.
4. Bank Loans
The idea of sitting in front of a banker while he evaluates your business can be very intimidating, but there are reasons to choose a traditional bank loan. First, the bank will not try to interfere with your business. Once you’re approved, they will write you a check and leave you alone as long as you make your payments. Also, the process of putting together a detailed business plan may seem daunting, but it will refine your thinking and uncover any potential trouble spots.
Related: Factoring or Term Loan—Which is Best for Your Business?
5. Alternative Lenders
If you don’t get approved for funding from your bank, there are other place to turn to for funding. Peer-to-peer lenders such as The Lending Club or Funding Circle are a good option for some businesses. You also may want to visit your local credit union; you may find them more receptive than a large bank.
6. Hard money loan
Hard money loans have become an increasingly common way to fund growing businesses in recent years. A hard money loan is a short-term loan offered by a private lender that’s secured using real property as collateral. If you own property – a home, condo, rental properties, etc. – you can use it to secure a hard money loan. Hard money lenders are not as concern about your credit score as they are about the value of your property. If you have valuable property to use as collateral, it is likely you can obtain a hard money loan with bad or no credit.
Related: 5 Financing Alternatives for Small Business
7. Angel Investors
Some people love to invest in exciting startup businesses with strong potential returns. If your business is a mom-and-pop operation that you hope will support your family and a few employees, you probably won’t attract this kind of capital. But if your plans involve an IPO, selling to a major corporation, or expanding into a national or global operation, you might be able to attract this kind of investment. Joining a local incubator or entrepreneurship program can also be an excellent way to expose yourself to this kind of funding. Remember that angel investors are co-owners so be prepared to take direction from significant investors.
8. Venture Capital
Venture capital is a form of equity-based funding in which a large investment group, known as a venture capital firm, invests in businesses with high growth potential. Like angel investors, venture capital firms typically ask for equity or convertible debt in exchange for their investment.
There are a few critical differences between angel investors and venture capital firms, however. Angel investors, for example, usually offer smaller amounts, perhaps putting $100,000 into a business, while a venture capital firm may invest millions of dollars. Venture capital firms also prefer companies that are already generating revenue, whereas angel investors are more willing to take risks on startup businesses with little or no income.
9. Selling Shares
If your business isn’t suited to angel investors, you might be able to attract investment from friends, family, customers, and clients who believe in what you’re doing. If you incorporate your business, you can retain a controlling interest of 51 percent of the company and sell the rest. Make sure there’s serious interest in your stock before you start down this road, though, because there are legal expenses and time-consuming filing requirements involved in incorporation. You’ll also pay taxes twice on your profits once as the corporation and again as a shareholder.
The Bottom Line
By combining these methods, you can build a strong financing base without taking on too much risk or giving up too much control. The right funding mix will give your business stability, flexibility, and security.
Your Questions Answered Quickly
Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay, Universal Funding can help your growing company. Call us at 800.405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.
About Universal Funding
Universal Funding is a nationwide invoice factoring solutions leader, supporting growth-focused businesses with scalable factoring solutions. With its invoice factoring, payroll funding, and purchase order financing services, Universal Funding provides clients with the working capital needed to grow and support their businesses without taking on new debt. Ranked as one of the nation’s top invoice factoring companies, Universal Funding provides cash flow financing for businesses all across the United States.
