Need Cash?
Laura Renner • October 26, 2020
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Capital is often the most critical factor in the success of a small business. Yet it is so often misunderstood as far as what options are available. Listed below are some good and not-so-good (but do not count them out) options.
- Friends and Family
Sometimes your friends and family will contribute when you need it. If they are investing, make sure they understand they may not receive their investment back. It is usually better (and easier to manage) if they expect to lose the money and get a pleasant surprise when they receive it back.
If they are lending you money, consult the best ways for you to set that up. We are not financial or legal experts and will refrain from offering advice here.
- Credit cards
Credit cards are a very expensive option but they certainly give you access to capital. If you can manage it and have a plan or the confidence to pay them back, it is an option. Just know that it is costly and potentially a slippery slope.
- Bank loans
Probably one of the most commonly known methods for accessing capital, bank loans can give you larger amounts and favorable terms. They do have a variety of products as well: lines of credit, loans, credit cards, etc. However, banks can be risk averse. You may struggle to find a bank willing to lend to you if you are not yet profitable or even have revenue.
- CDFI loans
Community Development Financial Institutions offer micro loans to businesses that cannot get capital elsewhere. Oftentimes, they focus on geographic communities but sometimes do focus on types of communities, such as veterans. Indeed,
in Oakland, California, has an arm that focuses on
.
- Grants
Especially during COVID-19, many organizations have grants to offer small businesses. Application processes and eligibility requirements vary but the key is that grants do not have to be repaid.
- FinTech lenders
FinTech is the new “hot” trend. The nice thing about them is you get notified instantly of your approval and amount of financing. The downside is that they are also extremely expensive. As the old saying goes, you can have fast and good but it will not be cheap.
FinTech also offers various products such as lines of credit and factoring. Oftentimes, you can get the capital within a day or two. Just keep in mind the expense may put you in a hole you will struggle to get out of.
- Investors
Perhaps the most famous method to access funding is through venture capital. This option is the “sexiest” but, I think, the most misunderstood. Venture capitalists make the return at the exit (e.g. when you go public, get acquired, etc.). If you are looking for big growth with a fast exit, then venture capital may be a good option.
However, if you are looking to build something for the long term that is more focused on mission than profits, venture capital is something to avoid. That said, there are social investors who want their investments to make an impact.
consults in this area and often speaks on this paradigm.
- Managing your cash flow
Managing your cash flow well can also help mitigate financing issues and set you up for the most optimal options available. Over the years we have written a few articles on cash flow. You can check some out
and
.
Capital is critical to the sustainment and growth of your business. There are options out there that are good, cheap, or fast. Take some time to determine what works best for you and your business in this moment and what sets you up for the best future possible.
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