As inflation becomes the number one problem small businesses face today, more and more are searching for ways to stretch their working capital. Of course, reevaluating cash flow management and cutting costs is the first place to start. But once the changes have been made and cash is still needed, it’s time to look elsewhere.
In 2021, nearly 62% of small businesses used personal funds to cover gaps in their business’ cash flow. While this option is turned to often, it places serious strain on the business owner’s personal assets. Instead, the healthy answer may be turning to outside funding sources for help.
How Funding Helps Small Businesses
There are many advantages to utilizing small business funding. Many entrepreneurs turn to financing to secure the money necessary to get their idea off the ground. Simultaneously, their funding choice is helping them build credit. Additional capital also helps businesses expand to new locations, develop new products and provide more services.
Business financing is also important during slow business months. It can help you bridge cash flow gaps so your business can continue operating smoothly. It provides the funds necessary to take on larger or multiple orders all at one time by allowing you to purchase the supplies and labor needed to fulfill those orders. In short, having enough funding can help you stabilize your cash flow, increase working capital and meet other financial obligations.
The Struggle to Get Small Business Funding
For years, trying to get small business funding was a huge challenge. The main option was going to your local bank and applying for a business loan; these traditional options are notoriously difficult to apply for, however. Today, there is a long list of options to choose from, some promising funds in as little as 24 hours. Another big advantage, many of these alternative funding options are specifically designed to meet the needs of small businesses and startups. Online lenders, for example, may have more flexible eligibility requirements.
Which Option is Right for Your Small Business?
In most cases, an alternative lender will be able to place funding in your business account faster than a traditional bank. These lenders target various business purposes, so it’s important to have an understanding of what each has to offer. Here’s a list of some of the best options available today, and how they can help your business:
- Microloans. As it sounds, microloans are smaller loans that often help disadvantaged entrepreneurs secure financing to start or expand their business. Loan amounts range from $6,000-15,000.
- Invoice factoring. Also known as invoice financing, invoice factoring provides businesses with cash they’ve already earned that is simply tied up in accounts receivable. This money then helps them improve cash flow, pay employees and suppliers and reinvest in their operation.
- Equipment financing. This type of loan helps business owners acquire or lease equipment for their business. Instead of laying out large sums of money, the business can upgrade equipment affordably.
- Business line of credit. Also referred to as a revolving line of credit, this option allows you to access funds from your credit line, pay back some or all of it, and then access it again. Interest is only charged for the amount of the credit line that was used.
- Merchant cash advance. Cash advances work well for businesses that need capital immediately to address cash flow issues or short-term expenses. It provides cash upfront, and then you repay using a percentage of your debit and credit card sales, minus a fee.
The bottom line: It’s important to find a financing product and provider that suits your business’ unique needs. The lender should also have years of experience in working with your business type and industry. If you’re a small business owner, partner with a provider that helps small businesses build and maintain success.
Don’t wait until your business is in a tight spot to seek outside funding. Secure the financing you need to boost cash flow and chase your business goals.
Michael Hollis is a Detroit native who has helped hundreds of business owners with their cash advances solutions. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.
