Need Money Fast? 4 Options for Small Business Owners As you push your business forward, think about financing early and often to accept any challenges as they arise.
By Anna Johansson Edited by Dan Bova
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As a small business owner, you've probably experienced both feast and famine. Sometimes money is tight. And while the hope is that the lean periods only pop up once in a while, sometimes you'll need a little (or big) infusion of money to keep pushing forward.
The Need for Green
There's an extremely fine line you have to walk when scaling. If you expand too quickly, hire too many employees, and order excess inventory, you could deplete your financial resources and crash. But if you don't take any chances or prepare your business for growth, you won't be able to respond in an efficient manner when you finally get the big break you've been waiting for.
Related: 5 Main Reasons Banks Turn Down Small-Business Owners for Loans
"Contrary to conventional wisdom, the most dangerous period for entrepreneurs is not when they start up from scratch but when they scale up for growth," professor Daniel Isenberg told the Harvard Business Review. "When you are a startup, there is relatively little to lose, mistakes are fixable and a small amount of cash and a cohort of committed colleagues can go a long way.
"But when you suddenly accelerate and grow, whatever your company's age, things get really hot really fast, largely because your need for cash explodes overnight."
As Isenberg points out, the best thing you can do for your business is be prepared. You need to think about how you'll finance growth well before you ever start scaling. This ensures that you'll establish the right foundation, and it will help you facilitate growth without prematurely investing in resources and assets that you can't use. So, what, exactly, can you do when you are ready and need money to expand? Here are four options.
1. Online lenders
If you need a sizable loan, you'll still need to go through a traditional bank or lender. However, if you need only a modest amount of cash, online lending msy be the way to go. Thanks to new technology, online lending has become faster and more efficient. A solid entrepreneur can reasonably expect to receive a loan within a few hours of contacting an online lender -- and the rates can be surprisingly competitive.
Related: The 5 Cs of Qualifying for an SBA Business Loan
2. Personal installment loans
If you're really in a bind and need some quick cash, a personal installment loan might be the way to go. A lender simply checks your credit score and processes your request. In most cases, you can get the money -- which can range from a few hundred to a few thousand dollars -- within 24 to 48 hours. Personal installment loans - also known as cash advances - are typically paid back on a fixed schedule over a period of a few months or years.
3. Line-of-credit loans
One of the most useful loans for growing small businesses and startups is the line-of-credit loan. With a line of credit, your business gets approved for a certain amount of money for a specified period of time -- typically one year. Should you need the money, you simply withdraw on the line of credit as if it were cash in your bank. If you don't need it, you can leave it there and avoid paying interest. This kind of loan offers the best of both worlds when you aren't sure how much you'll need, or when you'll need it.
4. Receivable financing (factoring)
One of the classic methods of financing a growing business involves selling your accounts receivable to a financial institution (often known as a factor). The factor advances a portion of the receivables -- likely 75 to 90 percent of the value -- and then holds on to the remaining portion. The benefit of receivables financing is that you're able to get money fast, without compromising orders or cash flow. It's a good solution for businesses that have orders coming in, but don't have the money to fill those orders.
It's okay to trim the fat.
"Some founders think that scaling only involves growing upward and outward. However, as your company grows, you may find things that no longer work, departments that are no longer needed and staff members that don't gel," entrepreneur Sujan Patel has written in Entrepreneur.com. "Trimming back those items that aren't working is an important part of building toward things that are. As you scale your business, don't be afraid to trim fat so that your company can grow effectively."
Scaling for growth requires patience, diligence and foresight. Not only do you have to get rid of the parts that are weighing you down, but you also have to think about how you can add valuable assets. As you push your business forward, think about financing early and often so that you have the fiscal resources to take chances and accept challenges when they arise.
