Small businesses live and die on account of their cash flow and capital, how much money is coming in and flowing out of the business and how much the business can retain for investments, upgrades, and opportunities. These are key metrics for any business, but especially those just starting out or in a mode of aggressive growth.
Both shortages in cash flow and shortages in money on hand lead to today’s topic–how to find money for your business. Business owners are constantly looking for ways to bring money in, pay their bills on time, and grow their operations–having more money is necessary (or a product of) all of these operations.
So–what are some of the options for business owners who need money?
One of the more direct ways of getting money is to ask a bank to lend you some. Commercial finance options are plentiful, including business lines of credit, business credit cards, and direct business loans. There are also loans specific to what you’re buying, including commercial vehicle loans, computer equipment loans, etc. If you have a need, the credit, and the financial strength to do so, a bank is willing to lend you money for your business for just about anything.
Very often, the business owner will be asked to personally sign for loans obtained for a business. This is a crucial decision and one that should be weighed against the risks involved by personally guaranteeing loans. However, given that businesses who lend money are often relatively new, sometimes a personal guarantee is the only way to get more capital.
If your business deals with a lot of receivables (i.e. you don’t always get paid right away), another form of credit is negotiating favorable terms with your suppliers. For example, a window installer might negotiate to pay the glass manufacturer within 60 days, about the time they expect to be paid by their customer.
There are fees and interest costs associated with all the options, but the benefits provided by the extra inflow of cash can be worth the expense.
Another option finding a lot of success in recent years is crowdsourcing. Most often, this is through a process of putting an idea for a new business or product to the world, and waiting for people to provide money in exchange for some incentive, usually access to whatever project or product you’re trying to make.
Crowdsourcing has enabled projects like Seth Godin’s recent book, as well as Adam Baker’s movie a few years ago. It’s a useful option if you have an attractive idea, or a well-connected network that’s willing to back you up.
Fund as You Go
Of course, borrowing money is not always the best option. Many times, the clearest path to business success is forging ahead only with the cash you have on hand. “Earn-then-spend” is a strategy that was learned the hard way by many of the businesses that survived the downturn, particularly in my industry (construction-related businesses). For some of the smallest businesses on the Web like this blog, it’s also the only model that really makes sense.
Having said that, given the right circumstances, lending provides you with the leverage you might need to increase volume to a profitable level, hire that marketing consultant you’ve been holding off on, or finally move into an office downtown. The right loan at the right time can really put your business “over the hump” and drive profits for years to come. Even for the tiniest of businesses.