You run your business wisely (well, hopefully, you do). You have everything budgeted out, with money allocated to different expenditures, upcoming marketing campaigns, and salary. Especially early on, money may be a bit tighter than you’d like, which provides very little in way of wiggle room. What should you do in the event of a sudden expense you didn’t account for, a presented opportunity or another need for money altogether? There are a handful of financial strategies you can follow to fund short-term business needs. Some might work for you while others may not prove possible. Whatever the situation or monetary bind you find yourself in, here are some options to consider.
Sell Off Assets
How bad do you need money? How much money do you need? And do you really need the assets to survive? Assets bring value to your business. You can also use these assets as bargaining chips when you need some extra cash in the bank account. You just need to determine whether these assets are vital to your company and if you can continue on without it.
Selling off assets is never something you should take lightly. If you run a bakery and your greatest asset is the dough mixer, can you get by making everything by hand while maintaining the same level of quality? If selling off the asset will cripple your business, look for another option. Even if whatever you need the money for seems like a sure-fire investment, investments rarely pay off instantly. Before you pull the trigger on selling off anything, always look at your short term and long-term business potential.
Borrow Money from Family or Friends
Alright, so this one is a bit juvenile . . . and you may not feel great about it. Going back to mom and dad to ask for money feels a bit like college days when you needed a few bucks for laundry and pizza. There’s no shame in asking for some money though. If you’ve gone through business school, you probably have been told countless times over that you’ll likely fail and go bankrupt multiple times before arriving at a winning idea. Most of the top businessmen in the world have experienced this. Ideally, you’d avoid bankruptcy and from starting over, which is where your family and friends come in. Naturally, you’ll probably need a bit more than a few hundred bucks, so keep in mind who you’re talking to, what you need and what they can afford. I.e. Don’t go to your plumber brother asking for a half million dollars.
Line of Credit
If you are an established business, you’ll have more access to lines of credit. Local banks and credit unions like working with established businesses as the money lent out is usually higher than that of the average consumer, which means the bank can earn more from interest. It may be a bit trickier if you run a new company or if you’ve run into some financial difficulty. However, if the money is for a new venture or the opportunity to expand your company and you’ve identified ways to do so (with a business plan in place), most banks will jump at the opportunity.
Before you head into the financial institution though, make sure all your financial information is in order. The more insights you can provide the bank regarding what you need, what you’ll do with the money and how long it will take to pay the money back, the better off you’ll be at receiving the line of credit.
This is a viable option if your business has proven to be successful in the past. Some financial institutions and lenders are willing to shell out up to (and, in some special cases, more than) $100,000. Of course, in order to land this kind of money you need to prove yourself and your business. This requires a track record of sales revenue. Like all other monetary options though, there are potential risks and the last thing you want to do is run into problems paying your employees (and keeping the business open) within a few months. So before you sign off on any kind of payroll financing, go over everything ahead of time. If you have an accountant or accounting department, have them go through the information. They should be able to help you decide what works best with the current financial situation of the business and what you’re looking at doing with the money once cash is in hand.
This one is not generally recommended. In fact, most financial advisors would point you in the other direction. Essentially, you’re taking money from your future to pay for the present. But when you need money you need money and there isn’t much you can do about it. Before you do decide to go cash in some of your retirement money though, make sure you understand the potential penalties connected with doing this. Some retirement accounts let you perform early withdrawals without issue, but a large majority are set up to prevent this. Because it is your money, you are not prohibited from taking money out, but you are hit with heavy fines and likely higher than usual taxes on the withdrawn money. Examine everything and really think about whether or not this is the right form of money you want to use for business expenses (Bankrate, 2017).
US Small Business Administration
Regardless of how you feel about the current small business culture within the United States, there are avenues you can take to land the necessary financing for your business. The United States Small Business Administration is one such destination. This administration provides loans to small business owners. Each loan is a bit different from the next, so the kind of loan you may qualify for, and the amount of money you may be able to receive, greatly depends on a variety of factors, including your location, kind of business, what you need the money for and current financial situation your business is in.
If the money the SBA provides is not enough, or if the administration is not able to provide you with a loan at all, it can help connect you with qualified lenders in the area. The agency is also excellent with regards to connecting you with local services and resources. This includes the best small business banks in the community and options for growing and developing your business.
Beyond traditional loans and money you need for your business, if you are located in a natural disaster location, the Small Business Administration can help connect you with appropriate disaster relief as well. Say you live in Oklahoma and your business was just hit by a tornado. SBA may be able to provide valuable resources that will help keep you afloat until you can recover from the disaster. Even if you don’t need a loan, and are just curious about potential monetary options and how to open a business, it is well worth looking into the U.S. Small Business Administration for the resources it provides (U.S Small Business Administration, 2017).
This may be a viable option, but it is something you need to weigh heavily before moving down this road. Essentially, you ask current customers to pay for services in advance. This gives you extra working capital at your disposal for the time being (but less down the road). The trick here is to make sure your customers do not start to think the business is in financial trouble. If they do believe this, they might start to look elsewhere for the products and services you provide.
So how should you go about doing this in the first place? And how can you gently nudge your customers into paying for services further down the line than what they already are paying for? Offer discounted prices when paying for longer contracts. There’s a good chance you already do this with some of your own bills. Sign up for three months and pay a certain fee, but if you pay for 12 months you’ll see a nice discount every month. Consider executing a plan such as this if you need extra working capital and want to avoid taking out loans or selling off retirement funding (Accounting Coach, 2017).
There may come a time in the life of your business when you need to make tough decisions regarding finances. Other times may bring along exciting opportunities, even if your money is a bit tight. No matter how well you budget your business out, it isn’t always possible to account for everything life may throw at your company. Whatever the reason or whatever the situation, take a long look at these different options for funding short-term business needs. One may likely provide the necessary monetary assistance your company requires.
Which funding option do you think would work best for your short-term business needs?