NEW! Download the free Cash Flow Problem and Solutions Mind Map today! You have probably heard the popular statistics about how most new businesses fail within the first few years of opening. What you may not know is the reason for that failure. Cash flow. Businesses simply run out of cash. There are all kinds of reasons it can happen, some of which point to deeper flaws in the business plan or poor operations management (i.e. prices set too low, costs too high, customers don’t pay on time, business doesn’t vigorously go after payments owed, too much inventory, too much equipment, and so forth). It may not have anything to do with the concept of the business itself or its potential profitability. In fact, on paper, the business may be turning a profit but unable to the keep business running. You’ve got to pay salary, rent, keep the lights on to even do the money making activities your business was created to do!
So, what do you do when cash is tight? We’ve identified 10 little known sources of funding or emergency finance for cash-strapped businesses. We suggest you print out this article and save it for a rainy day. Without further ado, here are the 10 sources of business cash.
1. Sell your receivables at a discount, a.k.a. Factoring. This is a kind of cash advance on your cash flow–payments owed to you from clients and customers. The invoices you sell could be for services or goods. Some banks offer factor funding.
2. Sell your customer’s future installment payments at a discount. This is a variation of factoring based on contractual payment plans. The official term is consumer installment financing.
3. Get a Merchant Cash Advance. This is a quick way for small businesses to get cash immediately in exchange for a percentage of future credit card sales as they come in. Millions of businesses have found cash flow help through merchant cash advances, but just like consumer cash advances you have to watch out for high interest rates.
4. Sell your purchase orders. So you haven’t yet completed the sale, but the customer has made the order. You may not have enough financing to produce or deliver what the customer wants. You can sell the purchase order to a purchase order financier. These are higher risk and higher cost sourc eof funds, usuall open to wholesalers and distributors vs manufacturers.
5. Borrow from strangers. Social lending a.k.a. peer-to-peer lending pairs cash strapped businesses with individuals willing to lend, usually up to $25,000. There are 2 main companies that make funds available to businesses: Prosper and Lending Club. This is a good option for home-based businesses, the self-employed and others who would find it a challenge to establish creditworthiness to a bank or credit union.
6. Live in a state that has a small buisness funding program with deep pockets. Eleven states offer serious incentives to entrepreneurs using loans, grants and equity.they are mostly geared to new technology and alternative energy companies, so if your firm is involved with technological innovation you could be in luck. States include the Ohio Third Frontier Initiative, Massachusetts Technology Collaborative, New York State Foundation for Science, Technology and Innovation, South Carolina’s SC Launch, Indiana 21st Century Research and Technology Fund, and the Michigan Pre-Seed Capital Fund.
7. Sell your expected lawsuit settlement. If you have a pending case and expect a settlement, there are companies that will advance you about 10% of the expected settlement (in exchange for a much larger chunk).
8. Sell your business model or past performance. Nonprofit credit unions offer business loans that cost less and under less stringent requirements than traditional commerical banks.
9. Sell your good name. This is also known as a signature loan or unsecured loan. Unsecured credit cards also fall into this category. Signature loans are the most difficult to get at any time, but especially difficult in the wake of the global financial meltdown. However, because they are tied to creditworthiness, the interest rates are lower than most other sources of funding, so definitely worth exploring this as an option.
10. Get credit directly from your suppliers or landlord. Negotiate to extend your payment terms. This is an instant way to get an additional 30 to 60 days of credit (or more) that can ease the pressure on your cash flow and keep you in business.