One of the primary challenges of any small business is securing funding to start up, keep the doors open, and grow when the business takes off. Fortunately, there are many ways small businesses can secure financing.
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Secure a merchant cash advance
A merchant cash advance is an advance on sales. A business that meets specific criteria is given an influx of cash in exchange for a share of future sales. The merchant (small business) promises to pay the advance off by relinquishing a share of their sales. Merchant cash advances are not loans in the sense of having set payments or interest charges.
The criteria for a merchant cash advance is that a business has existed for a set period and has annual sales exceeding a certain amount. The upside to a merchant cash advance is that companies with less than stellar credit or those without extensive histories can secure the cash they need. The risk is if their sales do not come through as anticipated, they may be unable to pay the advance.
Traditional business loans
In some cases, a business might be able to secure funding via a traditional loan. There are two types of business loans: a traditional loan through a bank and a loan through a governmental organization.
Bank loan
A bank loan requires the business to have a solid credit rating, prove its annual income, and show that it can repay the loan. The loan gets paid off in installments, and interest gets charged for the duration of the loan.
Government loan
Through the Small Business Administration (SBA), some businesses can qualify for a loan that typically charges less than a bank loan. The SBA has numerous types of loans specifically geared toward certain companies. Qualifying for an SBA loan may also open up doors for more funding avenues, including grants.
Savings
If an owner has the assets, they can also put their own money into their business. For many small businesses, outside of external investors, owner equity is the least expensive, most readily available form of funding. For many loans, an owner must put in some of their own money to show they are interested in the business succeeding.
Loans from friends or family
Friends and family loans are also a viable way of securing funding for a business or helping a company make ends meet. The best advice for these types of loans is to ensure the terms and expectations are spelled out in legal documents before any funds get transferred. Documentation avoids conflicts and makes it clear whether the loan has been honored.
Increasing sales
Increasing sales sounds obvious, but for many businesses, it is the last place owners look to secure funding. There are many resources to figure out ways to increase sales. Offering promotions to increase sales or discounts on bulk purchases are just two ways of ensuring a business can increase its cash.
Final thoughts
Using tools like loans, merchant cash advances, or securing funding from yourself, friends, or family can quickly get cash into a business. You should be open to any funding resources you can secure.
