Small businesses often fail, not because of a lack of skill or a poor product or service but because they lack cash. And as we learned previously, cash flow problems can quickly spell insolvency. But where to get your hands on money to tide you over when you need it? What are the financing alternatives?
The bank is the first place many of us turn when we need a business loan or business credit but, for family businesses, the chance of actually getting one is slim. Says Inc. Magazine, banks simply aren’t lending to small businesses the way they were before the financial crisis.
This is because banks have strengthened their lending requirements and, often, see small or family businesses as a risk. Current lending criteria include:
A micro loan is an extension of credit to individuals who lack collateral and have a poor credit history. In short, the sort of clientèle to whom the traditional banks avoid lending money. Such unsecured loans are very attractive for many micro-businesses (small businesses with less than five employees); however beware:
The potential exists to find a private investor that’s willing to invest in your family business – perhaps discuss with friends, family, and business associates who have access to capital?
Business funding from state coffers is available across a wide spectrum of business activities, in the form of grants, loans, and credit guarantees – all designed to encourage entrepreneurial activities and boost the economy. Be patient though – although there can be considerable red tape involved in securing such funds, it can be worth the time and effort (often, no collateral is required and interest rates are zero to low).
Although not ideal – nor sustainable long-term – using a credit card account to provide some short-term working capital is an option for small businesses. However, do make sure that you:
You could try raising working capital by offering an investor shares in your company in exchange for capital. This is often referred to as seed money. Generally, this is only an option for established businesses with proven track records or those with a unique, novel idea or patented, new technology.
The economic crisis has forced entrepreneurs to get creative and support one another. Enter crowdfunding. It’s the practice of soliciting funds (donations, loans, or investments) from the public, usually via online channels, such as Kickstarter, and GoFundMe.
To bootstrap a business is to start a business with a finite sum of an entrepreneur’s own money and then to fund its development with internal cash flow. It worked for The Body Shop founder Anita Roddick and it could work for your family business.
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