Whether your business is a start up or has been around for a while, at one point or another, you will probably have to come up with some cash to feed into the business. This is what we call cash flow finance. Money that helps you to stay afloat and keep your business operations running smoothly.
If you are a small or medium size enterprise (SME), you will know that there are times when it becomes imperative to find extra cash to keep the business running, help it grow and improve operations. There are lots of sources of business finance around for start ups and established firms alike but some are more easy to access than others, or some will be more suitable to your business than others.
Here are a few ideas if you’re looking for a cash boost for your SME:
- A bank loan
Bank loans can provide funding solutions to all sorts of business finance problems, with short, mid and long term loans all available, for all sorts of purposes. They can provide the funds you might need for working capital, or to expand or move premises, or to invest in equipment. But you obviously need to be very careful with a bank loan that you are certain you are going to be able to afford the repayments. You will need to be able to generate enough cash flow to cover the interest payments as well as the original loan value. You don’t want your business to be brought down by the debt.
In addition, banks will want some kind of assurance via a guarantee or even secured interest such as a mortgage on personal assets. You need to be very sure that you have thought carefully about whether this is the right course of action for you and that you have explored all other options before agreeing to these kinds of terms. There are some benefits to bank loans over other kinds of funding, including the flexibility to pay the loan off early if you want to and to terminate the agreement, and your business is still entirely yours to keep with a bank loan. There is no need to hand over any equity either with this kind of funding.
Getting advance payments from customers can give you the cash you need at the time you need it, at a relatively low cost. It forces your customers to show a commitment to you and your operation and is a very common and low cost way to keep the cash flowing in your business.
- Seek an angel investor
Angel equity is in essence selling off a stake in your business in order to get your business moving. There are obviously major implications to this and you need to think carefully about whether this is something you are prepared to do in order to get the capital. If selling a share in your company feels like selling your soul then it isn’t an option worth taking, but if it is a thought you don’t find horrifying and it’s the only way you may be able to realise your dream, then find a respected investor who is willing to invest a reasonable amount and at the same time give your venture a boost in other ways too, perhaps by using their contacts to help you with networking, mentorship, building your reputation, your clientele and your credibility.
- Get a loan from a Microfinance Institution
The beauty of a microfinance institution is that it offers a much lower interest rate compared to the high street banks. You may, however, be required to become a member of the institution first, and even save some money with them before they decide to trust you with a loan.
- Seek venture capital
Venture capital is a type of funding that is available to new and growing businesses. It comes from venture capital firms, or sometimes individuals, who specialise in funding business ideas with considerable potential for profit. In this process, the firm will offer you a start-up loan in exchange for equity.
It is not very easy to find a venture capitalist who is willing to invest in your business idea however, because they typically need to see the potential for exponential amounts of growth to be interested. As an example, just 3,500 of the 22 million small companies in the U.S. had received any funding from a venture capitalist.
In addition, you should be aware that this is usually a short-term investment, and the capitalist will want a return on their investment very quickly.
- Borrow from friends
If you’re lucky, you may have some friends and family members who are able to help you out. Lucky because they tend to be some of the most easy-going investors in the lending business! Flexible repayment terms, low interest rates and no obligation to hand over half the equity in your business, mean that they make unbeatable lenders! Plus, if you are having trouble paying it back they’re unlikely to go after your house. This, you might see as a disadvantage though, as no-one wants to be in hock to a close friend or family member. There is a lot of pressure and guilt attached to losing a loved one’s money if they’ve put their trust in you and the business fails.
- Save some money
You could put off the idea of whatever you’re wanting to do for a couple of months or even years in order to save the money on your own, and come up with the much-needed start-up financing yourself. In fact, this is the best way if you can manage to hang on. ‘Bootstrapping’ as it’s known – whereby you build your business from the bottom up with no external funding whatsoever – has built many of the world’s most successful companies and it carries many advantages. No-one else controls your destiny or takes a slice of the pie when you are the only one financing the growth of your business.
Having access to finance at the times you most need it, can make the crucial difference between succeeding and failing in business. Consider tapping more than one source of finance when looking at options as sometimes this can be a great way to reduce the costs of funding and potentially save your business from going under. As with everything in business, do your research first and look at all the options before making your decision.