Where do you find cash?
Even when times were good, money was still hard to come by when a small business needed to ease a cash-flow crunch.
Now that times are tough, bank loans or lines of credit can be nearly impossible for an entrepreneur to secure.
“Right now, banks are being the Scrooge with their money,” says Carol Roth, author of the book, “The Entrepreneur Equation.” “Banks have plenty of money to lend, but they are incredibly skittish right now … and they aren’t risk takers.”
So what’s a small-business owner to do, particularly if he or she needs cash now to make payroll or purchase equipment? He or she can do what entrepreneurs do best: Get creative.
Here are some innovative sources of funding that could help your small business when money is tight.
Look at local investment groups
There may be people right in your backyard willing to lend you some cash.
Organizations such as Slow Money and Local Investing Opportunity Network, or Lion, focus on local citizen financing and are gaining traction.
The idea behind these local investing, or “locavesting,” groups is to pool local investors’ money to make low-interest loans to small businesses.
Both Slow Money and Lion have formed local chapters around the country. In Maine, “No Small Potatoes” is one of 12 state chapters of Slow Money, which focuses exclusively on lending funds to food businesses. The group is comprised of 20 members that have awarded loans, ranging from $5,000 to $15,000, to three Maine businesses.
“These types of local investment group loans are ideal for businesses that don’t qualify for a traditional loan at a bank,” says Michael Bartner, associate director for the Slow Money chapter in Brookline, Mass.
Try crowd funding
Crowd funding takes the citizen-funding idea to another level. Your request for money is sent online to interested investors who may live in far-flung areas of the country or world.
There are various platforms for this kind of funding, such as Kickstarter.com, Peerbackers.com and Ideavibes.com, where you can advertise your business project and solicit pledges. Each platform works differently. Some offer investors varying levels of return on their investment — even in the form of products.
“If you get enough interest in pledges, you move forward with the project. So it creates a proof of concept for the market and provides unique access to capital,” says Anastasia Valentine, chief executive of Ottawa-based Sandbox PM, which operates Ideavibes.com.
She says entrepreneurs looking into crowd-funding options need to have a clear vision of what they want financed before signing up on a funding site.
“Demonstrate you are serious,” Valentine says. “State exactly where the money is going to go. If you have a product, offer photos of your prototype.”
Valentine says that crowd funding is not only a viable way to fund a business venture but can be a way to attract loyal supporters: “This fan base can be turned into customers,” she says.
Online pawnshops offer loans
If you need money fast to cover payroll or repair a truck, you might consider an asset-based loan such as those offered by pawnshops.
An online pawnshop works by securing a business owner’s high-end personal assets, such as jewelry or wine collections, gold coins and bars, or expensive watches, as collateral. The items are mailed overnight to the pawnshop company (make sure the online pawnshop is insured by a reputable company such as Lloyd’s of London). Based on an appraisal, the online pawnshop sends the money within 24 hours. The average business loan for Pawngo ranges from $5,000 to $50,000, says Todd Hills, co-founder and CEO of Pawngo, an online pawnshop.
“Many small businesses are getting into cash-flow difficulties … they are getting hammered from both sides. Business is tight, and credit is tight,” Hills says. “Usually they would solve these problems through line of credit or a bank loan, but they just don’t have the access to these funds anymore.”
Loan interest rates are higher than they are for a typical bank loan. And the average online pawnshop loan is for four to six months; just enough time for some businesses to get back on their feet.
Sell gift certificates
If you don’t need a huge infusion of cash but some money to get over a cash-flow hump, try selling gift certificates. You may want to offer these gift certificates at a discount to tempt customers into buying immediately and buying more.
Before issuing gift certificates, check your state’s laws regarding expiration dates and unclaimed gift certificates.
“And remember: Gift certificates are a liability … and you need to fulfill the obligation,” says author Roth.
Your business doesn’t have to be in retail to offer a gift certificate, Roth says. “A service business can offer these as well and can be a welcome gift for people,” she says. For example, accountants can offer tax-preparation gift certificates at a lock-in rate.
The bottom line is that you will get cash now — when you need it — and fulfill the service or product later.
Turn to vendor financing
You can turn to your vendors during a cash crunch and ask for better terms or even ask for a loan.
“If you have a long-standing relationship with a vendor and you have a healthy business, (vendors) may consider it because they don’t want to lose you because of a temporary cash-flow problem,” Roth says.
The key is to ask vendors for a loan without spooking them. “As long as you tell them this is a temporary cash-flow issue, which can be helped by a loan from them, they may be willing to loan you some funds,” she says. Payroll funding can also help with cash flow issues, which is essentially an advance on outstanding invoices.
A simple credit card trick
Last, a simple trick to smooth out some of those cash-flow bumps in the entrepreneurial road is to use your credit card to stretch out payment cycles. For example, if you have a bill that is due in 30 days, pay your supplier or vendor with a credit card on the very last day of that cycle.
“This will give you an additional 30 days to pay that bill,” Roth says. “If you need a little bit of breathing room — and you are waiting for cash — this will buy you time.”
Just make sure you pay the credit card in full at the end of that cycle.