Entrepreneurship is risky. Although four out of five small businesses survive their first year, only one out of three make it to the 10-year mark.
The potential benefits of small business ownership are alluring — the freedom to make your own decisions, set your own schedule, and reap the benefits when the big risks pay off. Yet, you are likely to face massive uncertainties. Cash flow fluctuations can leave you wondering how your expenses will be paid and whether you will be able to compensate and retain your valuable employees.
Thankfully, there are several alternatives out there to help your company get the financing you need. Your business is unique, so not every option will be right for your situation. Let’s look at the details of some small business funding techniques that could be available to you.
Traditional Bank Loans
Most banks offer small business loans to companies that can demonstrate stability and sufficiently low risk. Because they could lose their money if you default, these loans are often reserved for those businesses backed by collateral and years of successful credit and sales history.
Bank funding can take the form of a lump-sum loan or a line of credit that your business can draw on when needed. Terms vary, but these financing products tend to have lower interest rates and give you a longer time to pay back the funds than the alternatives.
Small Business Administration (SBA) Loans
The SBA is a federal government agency that was set up to assist entrepreneurs and small business owners. The SBA does not loan money directly, but it makes it easier for small businesses to access funding from SBA lending partners. It sets loan guidelines and offers guarantees to reduce the lender’s risk.
SBA-guaranteed loans can range in size from a $500 microloan up to $5.5 million. Some have restrictions on how they can be used, but possibilities include working capital to run your business and asset purchases to help it grow. The SBA can connect you with the right loan to meet your needs.
Paycheck Protection Program
The Paycheck Protection Program (PPP) is a special loan guaranteed by the SBA that was intended to help small businesses pay their employees during the COVID-19 shutdown. These loans may be forgivable, meaning your business wouldn’t need to repay the PPP loan as long as you use the funds as intended, don’t lay anyone off, or reduce salaries.
PPP funds can only be used for the following business expenses:
- Mortgage interest
- Payroll costs (must be at least 60% of the loan expenditure)
Merchant Cash Advance (MCA)
An MCA is not a loan, but rather an advance of future revenue. If your company can demonstrate consistent sales, an MCA provider may be willing to purchase a portion of your future sales at a discount. That way you get cash upfront, and the MCA provider receives a percentage of each credit and debit card transaction until you reach the agreed-upon payback amount.
MCAs do not require collateral or healthy business credit, and they usually involve a shorter payback period than business loans.
Also known as accounts receivable financing, invoice factoring involves selling unpaid customer invoices to another company for less than face value. This gives your business immediate cash, but you lose a portion of your profits. By buying the invoices at a discounted rate, the other company can then make a profit by pursuing collection of the full amount owed.
Business Credit Cards
Business credit cards can help your company manage cash flow by giving you access to funds that are then paid back at a future date. They work like personal credit cards — interest accrues if you don’t pay them off each cycle. Additionally, you may be able to take advantage of reward programs such as cash back or airline miles.
Business cards can help your business build your credit history and improve your FICO score. They may be difficult to acquire, however, if your business is relatively new or if you do not have strong enough personal credit to fulfill the personal guarantee requirements.
Sometimes, private individuals are willing to fund small businesses that need extra financial support during their early years. These “angel investors” could be friends or family members of the business owner, or they may be involved strictly for the potential of a high return on their investment.
By contrast, crowdfunding involves multiple investors joining forces and pooling together their smaller contributions to finance a business. Websites like Kickstarter and social media sharing platforms make this type of network-based funding possible. Crowdfunding is often used by startups who need capital to get operations off the ground, but it could also be beneficial for more established companies looking for a cash flow boost.
Some small businesses opt to leverage their personal assets to get their business through tough times. For example, you could borrow against your home’s equity or tap into your retirement savings and use those proceeds to cover business expenses. There is a danger of losing your personal nest egg if your business goes under, so use this option with caution.
The Revenued Business Card
The Revenued Business Card is a new small business funding alternative that is unlike anything else out there. Use this card any time to cover business expenses up to your spending limit, and only pay for what you spend. Daily payments are withdrawn from your business bank account for an agreed-upon term, with flexible percentages based on your card balance.
With no collateral or FICO requirements, the Revenued Business Card makes business financing possible for virtually any U.S. company that:
- Has monthly sales of at least $10,000.
- Can keep an average balance of at least $1,000 in its connected bank account.
- Maintains a positive bank balance, with no more than three negative days per month.
- Has been in operation for at least six months.
To see if you qualify for the Revenued Business Card, fill out our waitlist form or call us at +1-877-662-3489 today.
We're working on some pretty cool new pieces of content, including tools that will give you insight into your business finances.
Want to be the first to know when they launch?