The Short-Term Squeeze
You start your firm with a small amount of cash and an abundance of great notions and ambition. The sales activity has been enough to produce a net profit. You underestimated the quantity of inventory you’d need by about half. Accounts payable are past due to the point where some creditors want to send C.O D only, in order to keep your lenders
All of these are red flags for a very typical company sickness: excessive short-term debt.
If you are unable to raise additional capital, a cash crunch may develop. It’s critical to avoid this sort of money shortage by keeping your company’s expansion within the limits that can be handled by retained earnings.
Another indicator of impending cash problems is when receivables increase much faster than sales. This could signal that you’re giving generous discounts to win new customers or that you’ve relaxed your credit standards and are now letting unqualified buyers take advantage of you
If you don’t have access to more cash and don’t want to collaborate with a partner, consider obtaining long-term financing from one of the following sources:
- Funds from Owner – Studies indicate that as much as 60% of all small business funding comes from the owner or his/her immediate family. Outside of your immediate family or friends, you may find funding from other private parties or from financial institutions.
- Private Lenders – There are a few drawbacks to reaching out to private lenders outside of your network. To begin, they can be few and far between depending on your business. Second, they frequently demand a greater interest rate and/or want to acquire a piece of the company.
- Financial Institutions – The main drawback of utilizing financial institutions for small enterprises is that banks are not in the “risk” business. Although you may be very confident about your company’s prospects and have a positive cash flow projection, the banker is unlikely to trust it. You may have adequate collateral in terms of inventory, real estate, or other assets, but if the bank officer is not convinced, he or she will not make the loan.
- Small Business Administration – The Small Business Administration may be able to assist you with its numerous loan programs if financing is not available on reasonable terms.
- Money Brokers – There are “money brokers” who advertise in trade publications and various periodicals. Many of these brokers want to be paid ahead of time to find possible lenders for you. Be very cautious of any broker, and seek references and qualifications before accepting their offer. Before you sign anything, have your attorney and accountant evaluate any such proposal.
Please contact OneSource Business Solutions if you require further information on business funding alternatives in your region. Please feel free to call if you have any questions about the company financing choices accessible in your area.