Cash Flow CornerNews

Need cash quick? Here are some options

( Photo: Shutterstock )

Knowing the best options ahead of time can make the process easier when your business needs to acquire funds

There are times in every business owner’s life when you need cash. The business has hit a rough patch, an unexpected expense has arrived, or a new business opportunity has presented itself, but you don’t have the money to take advantage.

A 2015 report from Pepperdine University and Dun & Bradstreet Credibility Corp. found that 36% of small businesses have had to rely on their personal assets to fund their business needs.

So how do you avoid pouring your own money into a business that should be funding itself? Fortunately, there are a number of funding mechanisms that don’t require you making multiple trips to the blood bank – or the high-interest bank that deems your motor carrier too great of a risk. You can go the traditional route, or the untraditional, the choice is yours. The important thing to remember is you have more than one choice.

Traditional banks are typically more reluctant to lend to small businesses, given the track record of failures. During times of trouble, that is especially true. Still, if you have a relationship with a bank, that is a good place to start. If you are facing a tough patch, though, expect pushback and if approved, you might see a higher than normal interest rate. If you need cash to take advantage of an opportunity, walking in with a proper business plan of that the money will increase your liquidity can improve your chances.

If you don’t can’t or don’t want funding from a traditional bank, consider a local credit union. Credit Unions are generally more lenient in their lending practices and more willing to help out smaller businesses. In addition, there is money available through the Small Business Lending Fund, which designates $30 billion in funding to small businesses through qualified community banks.

The Small Business Association (SBA), many state associations and even some local Chambers of Commerce, can help businesses acquire loans. The SBA’s 7(a) Loan Program is designed specifically for start-ups and small businesses, helping them secure loans from lending institutions.

Lines of credit are another option. They work just like they do in the home market and provide more flexibility for companies that have ongoing needs. Maybe your operation is dependent on the weather and you typically need more cash to stay afloat in the winter. A line of credit can be tapped as you need the money instead of going back to the bank each winter for a loan.

Another option would be invoice factoring, which will be covered in more detail in a future article. The short version is that invoice factoring from a company such as Triumph Business Capital can provide a quick influx of needed cash. When you choose this option, the factor essentially purchases an invoice from you for a small discount and you get cash quickly. There is no accumulation of fees like in a loan, only the one-time discount.

Another popular effort to raising funds is “micro-financing.” These loans are usually under $50,000 and sometimes come with counseling through community development organizations. The counseling, though, can be invaluable to a business that is struggling to properly fund its operations.

Some businesses are turning to alternative lenders such as Kabbage. These lenders lend direct to businesses and can be helpful to those with less-than-perfect credit histories.

Peer-to-peer (P2P) lending is a way for companies to borrow directly from individuals without involving a bank. It is a little more risky, though, without a financial institution involved providing legitimacy to the transaction. In essence, a company would seek out individual investors who would offer their own interest rates and level of funding, usually based on the level of risk they are willing to assume. Lending Club is an example of a platform that offers P2P lending.

There are a couple of equity related options as well. One is straight equity financing where you provide stock in the company to investors in exchange for funding. The downside is that you are giving away a piece of your business, but if the alternative is going out of business entirely, it may not be the worst alternative.

There is a new kind of equity financing that has cropped up in the past year and that is equity crowdfunding. This is a hybrid approach to raising money where you provide equity in the company in exchange for funds, but instead of seeking out accredited investors, the funding comes through a crowdfunding site. Dun & Bradstreet, though, advises hiring a lawyer for this approach so you don’t run afoul of SEC regulations regulating crowdfunding sites.

A last resort to funding should be tapping into your personal assets. If you need to, though, mortgages, 401(k), personal savings and credit cards can all provide that lifeline you may need. If you go the credit card route for a short-term financial fix, use a card that offers cash back or no interest for a set period of time, both of which provide some small measure of financial relief. Some experts have been known to use credit cards offering cash back to fund their businesses – paying off the entire amount each month but accumulating that cash back, which can provide tens of thousands of extra dollars at the end of the year if you spend enough.

As you can see, there are a number of options available to companies looking for funds, whether it be in an emergency or for long-term planning. What’s right for one company, though, may not be right for all companies, so investigate your options.

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Brian Straight

Brian Straight covers general transportation news and leads the editorial team as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler.