Small business is the foundation of any economy and future growth. But given the financial crises and financial risks, regulations have made getting business financing almost impossible with traditional financial institutions.
However, the market has slowly changed and adapted with small businesses – now with a lot of new players providing business with so many additional options of getting business funding. Each of these options has been targeted at a type of business with different aspects of operations.
The following should give an overview of the different types of getting funds that you need to help with your working capital and cash flow.
Bank Funding and Loans
Banks are a good option for people who are running larger operations, with good credit and a very strong history. Unfortunately, they are generally not good for small businesses. The approval rates are historically less than 20%, and they involve a collateral as well as good history, lots of paper work, and potentially a full business plan just for applying for the loan.
Banks generally offer some other products which might be of assistance – overdraft, credit cards, and other custom products. These will generally assist in getting funds for cash flow and day-to-day operations.
Credit Card Funding
In a situation where you have very good time management and very good credit, you will be able to get a collection of credit cards and take advantage of their limits, free periods, rollovers. As well as some benefits with the rewards and points that the credit card offer.
However, you cannot use a credit card just to get cash without high fees. You can use the credit cards constructively to add debt to the credit and keep your cash for larger purchases and whenever needed.
This is often a tempting route, to get funds from angel investors or other type of investors – this does come with a hidden charge. You are giving away your future profits, you are giving away some control of your company, you are potentially giving away decision-making for the business.
These days, investor contracts are very complex, and there might be a lot of hidden clauses which really allows investors to overcapitalize on your success.
Yes, investors can be a good option, but know what the pros and cons are with each of the investors, and remember you must read the fine print.
401Ks – Retirement Savings
IRAs and 401ks can be a good resource for you business. It would require rolling your funds over into corporate retirement accounts. This process is not that simple, for the simple reason you need to be careful about not getting caught up paying tax and fees on this capital.
If this is an option for you, see a financial expert and know what you are risking for the future.
Line of Credit and Alternative Funding
Alternative funding has pros and cons attached to each type. One of the largest advantages is that these funds are provided without all the strings attached, you are not risking losing anything. You don’t give away a part of your company, and you can use the funds how you see fit to grow your business or manage cash flow.
The unsecure line of credit will allow small amounts of fund to be pulled out repeatedly, allowing the payments to occur over time and be split up. This will be a good choice when you can buy something over a period of time, or if you need fund for liquidity – spreading your cost out over manageable payments.
The alternatives are invoice funding, bridging funds. This will allow you to get the capital you need in one sum, and pay it over time.
These funds are cheap and expensive at the same time. The funds generally come with a high fixed fee, but also they come without all the hidden interest rates, additional fees, and personal liability. So they generally have a slightly high cost associated with the risk.
They are a great option for small businesses who want to grow their business, purchase or invest into their future profits, and don’t want to risk their personal assets, credit, debt collectors on making a business decision.