As an entrepreneur or small business owner, you probably regularly face difficulties managing your cash flow due to seasonal credit demands and time gaps between your business expenses and actual income.
For example, you’ve just received new inventory and suddenly your demand and sales drop, you fretting because you’re not sure if you going to be able to pay your capital needs on time. More often than not, you will need to take out some form of a loan.
After the stock market breakdown of 2008, the traditional financial institutions have been very reluctant to give out loans, especially those to small and new businesses. Seems kind of counter productive for the economy right? They aren’t even giving you a chance to break free from financial oppression.
I want to help you avoid stressing out about your cash flow road bumps, because you should have a fighting chance to make your business thrive. You deserve to have the tools, so today we are going to explore 4 alternative lending options that could give you the leverage you need to make more money.
1. Business Line of Credit
Lets face it, you don’t want a timing issue between your bills and revenue to cripple you’re business. Lines of credit are perfect for businesses that face seasonal credit demands where businesses need small loans on a regular basis.
Banks will offer a line of credit to most start-up ventures, you may be given an unsecured line of credit if you can demonstrate an excellent capital position, multiple sources of repayment and most importantly consistent earnings.
Lines of credit have much lower closings costs and you only make payments if you’ve got credit owed.
Here are a couple tips for establishing a line of credit with your bank:
- You must present reasonable financial documents that follow standard accounting practices, if you want a quick read on making financial reports check this article out.
- Lenders will not issue a line of credit to new ventures without the owner’s personal guarantee of repayment.
- If the funding group is not satisfied with your primary and secondary sources of repayment, they may ask for your personal collateral to secure the line of credit.
- If your new venture has more than one owner, the bank will collateralise from all the participating members to establish a line of credit.
- Ask about interest rate protection to protect you from rising interest rates, this may change year to year according to your track record.
2. Merchant Cash Advance
If you are a business owner who needs quick access to funding, perhaps merchant cash advance providers are exactly what you are looking for. Cash advance works by offering businesses a lump sum of money in exchange for a percentage of future sales.
Businesses that have strong credit card sales such as restaurants, service companies and retail could benefit from the cash advance system. You can get cash advance with bad credit and little or no collateral, almost to good to be true right?
But it is! The key difference between a traditional loan is that a loan has a fixed payment schedule, in the merchant cash advance system, there is no due date or fixed payment. Instead you repay the advance with a percentage of your daily credit card sales until you have paid off the advance and the premium.
3. Bridge Loans
Bridge loans are also known as “gap financing”, “interim financing” or “swing loans” because they are loans that are used until your company secures more permanent financing or clears existing debts or obligations. These loans “bridge the gap” between the times when additional financing is needed.
For example if you a home renovator, there is often a gap between the time that you profit from one property and your purchase of a new property. Rather than taking out a new loan every time, a bridge loan allows you more flexibility.
You could benefit from bridge loans if you need:
- Small amounts of funding to carry your business so it does not run out of money between major financings
- To keep your company afloat before handing it off to a larger investor
- A final debt financing to carry your company through the last stages of your acquisition.
4. Friends and Family?
We’ve all borrowed money from loved ones before, maybe it was for that lunch where you forgot your wallet or to get that new phone before your check comes in. But would you ask for their money to run your business?
I hope not, your friends and your family are your foundation and immediate support group, who do you go to when you get dumped or fired?
Successful business people understand that they should keep their business life and their personal life SEPARATE. Although your personal life benefits when your business life prospers, your personal life does not have to plunge when your business crashes.
Why not watch both your business and personal life flourish even when the traditional financial options have let you down. You don’t need amazing credit or substantial asset collateral to get the leverage you need to build your business, all you need is your determination.