Part of the problem is a reluctance by entrepreneurs to use credit, or a lack of understanding of just what is available to them. When one or both factors are in play, the business can quickly become so cash-strapped that it cannot survive.
It is understandable that many businesses prefer to avoid debt. It feels like a gamble on your business, one that will only pay off after you’ve paid a lot of interest–if it pays off at all. With that simplistic reasoning, many managers and owners dismiss borrowing as a means of financing the business.
But of course, that is a faulty train of logic. Many successful companies have started out getting endeavors funded with small business loans. These managers understand that proper quantities and types of debt are what makes their business grow. After all, you wouldn’t think of only buying a home when you could pay cash for it because that would mean decades of paying rent while saving up your own money.
And loans aren’t the only solution, although they are often the most practical and most available. Whatever route you choose, you also need to be sure you get prepared for the process of soliciting the funds. Let’s take a look at a number of ways to help finance your business.
Lenders understand that sometimes you have to have money to make money. They know that before any sales can take place, you will probably have to lay out a significant quantity of money for raw materials, training, personnel, utilities, equipment, space, and so forth. As a result, they are willing to loan you money in the short term to cover those expenditures, and then you will repay the loan once you have completed products that start to sell.
What’s great about this is that it pinpoints the specific needs you have. You won’t feel like you are propping up the business with an endless cycle of debt. Instead, you will be using the money as a seed to grow revenues later on.
It can be challenging to get entrepreneurs to accept this option. They have become successful because of their independent nature, so they are often reluctant to take in money that carries with it an obligation to do things the way somebody else wants them done.
It doesn’t actually have to work like that. Oftentimes, you need only to get the word out that you are interested in taking on investors and they will approach you, sometimes even as silent partners who are willing to let you maintain control. You can also limit what percentage stake they are entitled to with their infusion of capital, ensuring that you maintain the level of ownership you desire.
Calm down, we’re not talking about selling the goose that laid the golden egg. The fact of the matter is that everyone–business, individual, government–has assets that they don’t need. Some things might be outdated, some might be nonfunctional, some might have just slipped through the cracks.
Maybe you are too overwhelmed to deal with it. Maybe you don’t realize just how much there is. Whatever the case, it can be very easy to liquidate some of it and free up space and capital for more worthwhile endeavors.
Give things a hard examination. If you’ve held on to something because you thought you might need it later, look at it again. Has it been two years since you set it aside for a rainy day? If it has been there too long, let it go.
Financing a business is both art and science. It requires an accountant’s understanding of finance and a talent for deciding what will work. Develop those skills in yourself and you will build your revenues.