Running a business is a full-time job, even if you do have ZarMoney cloud accounting to make your job easier. If you’re not in the office or the shop, you’re probably at some remote location where you’re either talking with a client or an associate, crunching numbers to evaluate your balance sheet or devising new strategies to take your company to the next level. It’s never-ending; even a vacation is just a different backdrop for organizing and planning.
Those who have never worked for themselves or run a business, however, may find it difficult to understand the excitement and satisfaction that is found between all those hours of hard work and worry. That sense of building something substantial, of creating your own means of providing for yourself and your family, can never be overestimated. But whether you’re growing your enterprise or merely trying to stay afloat, the need for more capital is often something we all must face, at one time or another. In fact, if you have your company for any length of time, you may find it necessary to source business funds on multiple occasions.
So what exactly is the best way to access the financing that you need? How can you increase your odds? What amounts to a good lending deal and an impractical one? Well, let’s take a look at some of the many different ways you can source additional funding for your business operation…the alternatives besides the traditional visit to your local bank or lending institution.
Looking Beyond the Banks
Online Lending
Believe it or not, going online for your business loan is not that far-fetched. Online lending services such as Kabbage, OnDeck, Headway Capital and Prosper, to name a few, have become popular choices for capital-hungry business owners. One of the main reasons for the appeal is that an application can take as little as an hour to complete. A final decision, as well as the requested funds, can be rendered within a few days, whereas a traditional lending process can take weeks, even months. Experts believe that at least 70% of small businesses will eventually use online lending companies in some fashion.
Family, Friends...
The old adage is never borrow money from a friend. But on the other hand, if a family member or friend has some extra cash and they’re willing to lend it, why not? You’ll probably get a generous low interest – or even no interest – deal and you’ll avoid the hassles of tedious bank contracts. Just remember that the easiest way to lose a friend or alienate a family member is to leave a loan to one of them go unpaid. Even paying late is not acceptable…if you’re going to enter such an agreement, it’s important to treat it like any other official business transaction.
... and Fools
Already in business school, they are teaching that the first option to look for funds comes from Family, Friends and Fools. Who are these fools you ask? Everyone who isn't a friend of the family and is willing to lend you funds on too good terms.
Pulling from Within
Product Presales
If you run a business with physical inventory, you may decide to sell your products before they launch as a way to raise the needed money for your operating expenses. This method might help to pay for the inventory you’ll be stocking, as well as possibly open some doors in retail operations that might lead to future customers. Of course, this strategy requires efficiently coordinating inventory delivery times so you can adequately fill the orders and also correctly forecasting the number of units you’ll be selling.
Factoring/Invoice Advances
Of course, not everyone has the product on hand. So you might want to look instead into an avenue like factoring and invoice advancing, in which a service provider will give you advance money on invoices that have been billed. You then reimburse this amount back, with interest, once the customer has paid its bill. Upfront money such as this enables small businesses to close the pay gap between billed work and payments to their contractees and vendors. With an arrangement of this type, you can accept new jobs more quickly and grow your business at a quicker pace.
Making It Personal
Home Equity Loan
Even if borrowing from a traditional business lender isn’t in your cards, you might consider tapping into your home equity line, if you have one. These types of loans normally offer flexible interest rates that are less than traditional commercial rates. This is a loan you can easily control, in terms of when you pay and redraw your funds. On the other hand, you are putting your home up as collateral. Should your business fail or you can’t meet the conditions of the loan, you could ultimately face foreclosure. If properly managed, however, an equity loan is a very practical short term alternative. From the long term perspective, this is an impractical way to secure funds for your business that can lead to potentially disastrous consequences.
Credit Cards
One of the most readily available options for financing your company is a business credit card. The minimum payment on a credit card is quite low, so this can be an appealing feature of this loan type. You can often find a no-interest card, at least one that will provide that bonus for the first six or 12 months. Just remember that if you use your credit card to help finance your startup or to support expansion, interest rates and costs on the cards can jump up pretty quickly if you fall behind on payments. What’s more, carrying a lot of debt on your credit cards can compromise your credit rating, which can be damaging to a small business.
Using personal credit cards for financing business is yet another short term strategy, especially due to excessive interest rate and often not very high limit. Average credit card interest rate for 2020 is 17.98%, whereas traditional bank loans are typically from 2% to 13%.
For more information on small business loans, check this brief guide by Investopedia.
Selling Your Assets
In some situations, you may want to consider selling some of your current assets. For example, you might have an extra car that you don’t really use that much, but that could pull in $15,000 or so. Perhaps you have a little piece of property, a fairly valuable collection of some kind, or some expensive sports toys. The point is, if these assets are not vital to you and they can bring in some needed funds, it’s an easy way to raise capital without having to pay back a lender.
Sourcing Potential Backers
Venture Capitalists
If you’ve progressed past the startup stage and have steady revenues rolling in, you might try to connect with a venture capital firm. Fast-growth companies with a well-organized game plan and a smart exit strategy can attract millions of dollars for re-investment and strategic growth. Though you can potentially access an abundance of capital, keep in mind that venture capitalists are not the most loyal of business partners. They are in the game to recoup their investment usually within a three- to five-year time frame. If your company or your products take a long time to get to market, then this type of lending strategy may not work for you.
Crowdfunding, AKA Crowdsourcing
Are your products interesting? Innovative? Unique? This is one of the trendiest new ways to raise money for your enterprise. Websites like Kickstarter, RocketHub, FundRazr and Indiegogo enable you to glean small investments from a mass audience of investors. In many cases, you can offer your investors rewards or products in exchange for their cash, while other sites are designed to where you give up a small amount of your equity. Whichever site you choose, just make sure that you read all of the fine print. For instance, some sites will allow you to keep whatever you make through your funding efforts, while others stipulate that you must raise your entire money goal in order to access those funds. Also, check to see what kind of percentage a site requires or if they intend to charge a payment-processing fee.
How does it work?
You file your to-be products, and people from around the world will be able to send you money as a form of the presale. When your product launches, your backers (this is how they call lenders) will receive their product and services you promised in the first place. The campaign can be up on these platforms even shortly after you have launched your products, working as a short-lived selling platform, where people look for unique and interesting products and services they could buy and support small enterprises in the process.
Check out Indiegogo and how does it work.
Check out Kickstarter and how does it work.
Economic Development Offices
You can also tap into state and local economic development agencies, who regularly lend money to upcoming businesses…particularly technology and manufacturing firms. The programs are constantly changing at the offices, so check with your local branch to see what they’re offering and if you might qualify. These offices exist to encourage local businesses in the area, so they’re ostensibly on your side. They might be worth a try.
Not sure where to start looking? Try this EDA website with the search of each state's EDA offices here.
Going the Route Less Traveled
Airbnb
Got an extra room in your house or a garage apartment outback? Many homeowners these days are renting out Airbnb space to vacationers, convention goers and others who need a bit of lodging for a few days or weeks. If you have the type of home that lends itself to something like this, you can make impressive amounts of money, especially if someone books the room during a particularly in-demand holiday or event. Be sure to check the legality of this set up in your community before committing to such an endeavour. Increasingly, neighbourhoods are relaxing whatever conditions they previously set for Airbnb, and you might find a steady cash flow coming your way.
Among popular cities where Airbnb is banned are:
- San Francisco, California
- Santa Monica, California
- New Orleans, Louisiana
- Las Vegas, Nevada
- D.C, Washington
- Jacksonville, Florida
- Fort Worth, Texas
- Atlanta, Georgia
- New York
- Los Angeles
- Miami Beach
- Charleston
- Jersey City.
For more illegal destinations for Airbnb check out this post by Passive Airbnb.
Grants
Should your business operate within a research or scientific-related arena, there may be an opportunity to acquire some government grant funds. This requires becoming familiar with the strict guidelines that grants typically follow, and you must make your case that your business can meet certain research and development objectives. The entire grant process can be time-consuming, with only a nominal payday, but – done properly – a grant proposal may net you some funding.
Before you go down that road, however, try to become familiar with the types of grants available and decide whether your company fits into one of those categories. Generally, there is a huge demand for grant's money, with limited budgets and starting date. These starting dates then tend to overload the system with the application, yet who comes late, doesn't get served at all. So be sure to keep deadlines in mind, and apply as early as you can (and now we are talking minutes after opening, not days, not weeks - grants can be like tickets to Superbowl sold in minutes).
Put Your Vision to Work for You
As an entrepreneur, you know that resourcefulness is one of the biggest parts of the equation. It’s not unreasonable to think that you will have to put that talent to use, at some point, in the pursuit of financing for your business. If you believe in your business plan and take a realistic view of your bottom line – which is decidedly easier with ZarMoney online accounting software – you should be able to find funding sources that fit your vision and your financial parameters.
In the beginning, it’s often necessary to self-fund, or boot-strap, your business for a certain length of time before more mainstream funding opportunities present themselves. As you accumulate a solid track record, more avenues will open up to you. That’s why, no matter whom you approach for business financing, it’s critical that you establish a reliable history of meeting your debt obligations on time. Your reputation is your calling card.
Applying your ideas and imagination to your business venture is only part of the game. You need to have the proper resources to play. In that quest, be creative, be fearless and, most of all, remember that there’s more than one way to get from where you presently are to where you’re going.
