5 Ways to Get the B2B Small Business Funding You Need
Cash flow is one of the most important aspects to any business. Without the cash on hand to pay your bills, payroll, and rent, you’ll be in deep trouble. It may even cost you your business.
When your business needs cash, there are a variety of ways you can find this funding. None of the answers are simple, and will all require a certain amount of work, but all of them will in fact fund your business.
Short term and long term cash needs are very different from each other. You’ll find that the process you need to go through for each version of funding will be vastly different.
Interest rates are also a key consideration. These aren’t always obvious up front. Sometimes they’ll talk about cost, without referencing the actual interest rate. It’s important you calculate it so that even though the cost is only $18 a day, you know the actual interest rate is 30% and can compare costs.
On that note, interest rates aren’t everything. Cash flow is most important. So the cost per day is highly relevant. If you can afford the cost per day to access the cash flow and keep your business going, it’s short term pain for long term gain.
Here are some ways you can access funding.
Credit CardCredit cards are a double edged sword. If you already have the card, you can access the cash nearly instantly. However, it will cost you. Most credit cards are around 20% interest. That means for every $10,000 you borrow, it will cost you around $160 per month.
There are also usually fees attached with using your card directly for cash advances. It works great for paying bills, but if you need to fund payroll, the cash advance fee will need to be taken into consideration. This varies by card.
Depending on your credit card, your balance may also limit you. If you have a low credit amount, getting it raised when you need it most could prove to be difficult. Here are some ways to increase your credit limit.
Traditional Small Business Bank LoanThis method is more popular. It has some real distinct advantages and disadvantages.
The most obvious hurdle is speed. Getting a bank loan can be a longer process of approvals and paperwork. If you need money quickly, this likely isn’t the route to go. It can take weeks for this process to move forward.
Bank loans are also harder to get. Banks are very finicky about the security needed to loan a business money. If you’re in the infancy of your business, you’ll find this road very difficult. Most businesses don’t own the property they operate out of, and this can mean bank loans are hard to secure.
The upside to bank loans are the rate. You’ll usually find the best rates by getting a bank loan – if you qualify. Usually lower than 10%, and even as low as 3% if secured with property.
Invoice FinancingThis is one of the more popular methods for accessing capital. The basic principal is that you’re borrowing money based on your clients paying their invoices in the future. You’ll be using their credit worthiness to fund your account. This is just one of the lessons learned from successful entrepreneurs. They’re always finding creative ways to capitalize a business that’s low on cash. Once they realized they had an asset in unpaid invoices, they leveraged that asset. Now dozens of companies will loan based on this method.
For example, if you have 50k in outstanding invoices, and you’ve billed reputable companies that are unlikely to not pay you, you can borrow up to a certain amount of what you’re owed for a short period of time. You then repay the loan when the invoice gets paid.
This method is also extremely useful for fulfilling large orders that you don’t actually have the money to fund. You can borrow against purchase order invoices to fund the order, and repay the loan when the invoice is paid.
The rates of this funding are similar to credit cards, but the speed at which you can apply and obtain a loan is usually within a day or two. This is up to a week quicker than you can get your hands on a credit card (if you’re even approved).
Line of CreditMuch like credit cards, if you don’t have this in place before you actually need the money, it can be difficult to get after the fact.
It’s a good compromise between the access of a credit card, and the rates of bank. You’ll also have some of the same issues you face with getting a bank loan. They’re not always easy to obtain – and when you do, the credit limit may not actually be enough.
You’ll get the best rates if you can secure the line of credit with property or assets. This isn’t always easy with business, but could save you in the long run if you need to use it.
Chase Down Accounts ReceivableThis is the most labor intensive way to fund your business, but it’s also the most affordable.
Most companies have significant accounts receivable. If you’ve been putting off this task, you could have a sizable amount owed to you. Simply by collecting this amount, you can capitalize with no interest costs.
Sounds good, but chances are if the money is owed to you, you’ve already had a problem collecting it. Sometimes it’s just asking nicely, but other times it’s being on top of the client until they pay.
This is a risky strategy if you need the money within a couple days. There’s no guarantee anyone will pay that fast, even if they agree to send you the dough.
The most important thing is to look at all your options, see what each one will do to fit your needs and your budget.
Planning ahead can save you some big headaches, but hopefully these choices will help if you’re in a jam.
Posted in ...Financial Planning