Many small businesses depend on access to financing in order to grow, but their financing options will vary. Here’s what you need to know if you’re exploring how to finance a business need.
Before approaching any financing source, make sure you have your house in order, financially speaking. This means clearly detailing your financial need and projected cash flow, income and expenses. Understand that not all financing sources will agree with your definition of ability to pay, so you may want to explore some alternatives outlined below.
A loan or line of credit from your local bank is normally your best option, but it’s the most difficult to obtain. You will likely have to show a business plan, profit and loss statements, a cash flow statement and believable projections that demonstrate a track record of success.
You’ll also need to show a track record of sales success if you want to use factoring, which is typically for short-term cash flow needs. Factoring companies buy accounts receivable.
If you own business equipment, you may be able to sell it back to the supplier and then lease back the same or newer equipment, freeing up cash.
Businesses (and individuals) can raise varied amounts of money from many donors via crowdfunding sites like Kickstarter and GoFundMe in exchange for a product, service or a small piece of the company.
You could seek a large amount of money and needed expertise by offering an equity stake to the right investor.
The option of last resort: Using your personal funds and credit can provide the short-term money your business needs, but at a potentially high cost.
Find a mentor who understands your business, and don’t forget to tap your tax professional for help.