Businesses often find it a big challenge for them to secure the necessary financing to start up or expand or even to run their operations when they face a crisis. However, if you know your game, there are a lot of options available to secure the funds you need. To help you out, however, here we have formulated a list of top 5 ways to grab the necessary finances for your business. Let’s check out.
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#1 Consider Factoring
Once you have done all your calculations using a resource like Calculator All, the first thing you can try your luck with is what we call ‘Factoring’ in finance. It’s a method that requires companies to sell their receivables at discount for getting some up-front cash. Companies that have poor credit rating or have to fill orders well before getting paid often rely on this technique to acquire necessary finances. Nevertheless, it’s a really expensive method of raising funds but you can be a good ploy when things are as critical as not having good credit. Generally, the companies that sell their receivables have to pay a certain fee which is a particular percentage of total amount. If you’re paying 2% fees for getting required funds a month in advance, it becomes 24% interest rate annually.
That makes business enjoy not so good reputation in the long run. That being said, the companies are forced by economic downfall to rely on alternative financing methods and there are companies that are already making efforts to make it a more competitive option to grab necessary finances.
#2 Try To Get Some Money From Your 401(k)
If you are still unemployed and are planning to start a business of your own, the funds that you have accumulated over the years in your 401(k) can be quite tempting. And because of the provisions of the tax code, it’s possible to actually tap into these funds without any kind of penalty whatsoever if you take the appropriate steps to draw your money. Even though the steps are quite simple, they are legally complex. Therefore, you need an experienced campaigner to set up a C corporation along with a proper retirement plan for getting your retirement money to roll in.
Keep it in mind, however, that it’s your retirement funds that you are investing and if things do not pan out as expected, you won’t just lose the business but also the nest egg you have.
#3 Think Of Crowdfunding
Crowdfunding sites such as kickstarter.com offer an effective and fun way of raising money for your creative and low-cost projects. You have to set your goal for how much money has to be raised over a certain time period, like $1500 in 40 days. The site is then used by your family, friends and the strangers for pledging money. The website mentioned above has already funded almost 1000 projects that feature everything from documentary films to rock albums. Remember, however, that the option is not for securing long-term funds for your business. Instead, it facilitates support for one time ideas.
Generally, incentives are offered by project-creators for pledging. For example, if a writer is provided with $15, they’ll have to provide a book to the fundraiser. The supporters don’t get any long-term ROI and they can’t even write their donations off for tax reasons. But still, there are almost 100000 people that have already pledged to the Kickstarter projects.
#4 Attract Angel Investors
When you’re going to pitch your idea to the angel investors, apply all old rules i.e. be succinct, have some exit strategy in place, avoid jargon, etc. However, the game has become even trickier during the economic crisis over the years. Here’s what else you need to do for attractive angel investors easily:
- Add Experience: When you have someone experienced in the management team, it eases out the fears of the investors about the ability of your company to deal with tough economic conditions. Even if you have an unpaid, high experienced adviser on your team, it would raise your credibility manifolds.
- Know your game: You will need competitive analysis, market assessments, and some solid sales and marketing plans if you want to have some success with angel investors. Even if you’ve just started out, you’ll have to demonstrate your expert knowledge about the market you have entered into and the discipline to stick to your game plan.
- Stay In Contact: Angel investors may not show immediate interest in your business, particularly when you do not have any solid track record to show. However, you can fight that by putting together a way for staying in touch with them on various big investments, such as a big sale.
#5 Get Microloans
When you don’t have a good credit history, no collateral to offer and are not able to secure some bank loan, it doesn’t really mean you can’t get the funds you need at all. A good option that still exists for you is applying for microloans. Microloans are small business loans that can be anywhere between $500 and $3500.
Quite often, microloans are so small that the commercial banks do not bother lending these funds. Rather than a bank, you’ll have to consider contacting a microlender – some profit organization which works differently compared to banks. Such microlenders are often interested in offering small-sized loans, need less documentation compared to banks, and usually have quite flexible criteria for underwriting.
One thing to keep in mind, however, is that you’ll often come across microlenders that charge a bit higher rate of interest than the commercial banks. Nevertheless, these loans are tailor-made for startup entrepreneurs or entrepreneurs in existing businesses that are faced with a capital gap and want to secure enough capital for financing new equipment or, maybe, service a particular contract.
So, these are the options you have when it comes to grabbing necessary finances for your business. There can be many more options that you can consider but these, literally, are the best and worth considering.