Updated June 27, 2018.
Almost every small business ends up in this situation at one time or another, and getting there works like this:
- Step One: Have strong early success with the business in general or expansion plan.
- Step Two: Get lots of orders.
- Step Three: Receive late or partial payments from those new customers.
- Step Four: Need money (which you don’t have) in order to fulfill those new orders.
- Step Five: Panic.
It’s a tight spot, but not one you can’t squeeze your way out of. If you’re in that situation now, try one of the solutions below. If not, think about each solution and set up a plan today for how you’ll use the most attractive ones when you do find yourself in this predicament.
7 Ways to Come Back When You’re Short on Funds
Negotiate Terms with Your Vendors
Turns out you’re not the only business that delivers the goods before expecting full payment. Many vendors and suppliers will also take partial payment – or even promise of payment – and deliver everything you need to fulfill all of your commitments to your customers. If you’re very careful with timing, you can do this with labor by tracking carefully to a monthly or semimonthly pay period. Call your vendors and ask about terms (sometimes called “factoring”), either as a one-time emergency or just how you do things moving forward.
- Pros: Often free of charge. Makes payment for raw materials closer to when you receive money for your services.
- Cons: Not everybody agrees to this. It can result in “surprise” bills later.
Borrow From Other Projects
In some cases, it’s not a matter of having no money to get in supplies. It’s a matter of having no money earmarked for that particular project. You don’t want to do this every month, but for a one-time push you can opt to spend less on marketing, put one of your services on hold or reduce funding on any number of other projects to make the money happen in the clinch.
- Pros: No interest payments because you didn’t use credit. It can help you identify fat you didn’t realize you needed to cut.
- Cons: It can put a “hiccup” in other operations with unintended consequences. It also blurs the lines of your budget.
Borrow From Yourself
Comingling funds isn’t the best idea in the history of small business, but it happens all the time. If you have the personal funds to cover the business shortfall, lend it to the company just long enough to get that profitable paycheck. You can even do it at interest, though that’s often robbing Peter to pay Paul.
- Pros: No interest payments.It’s the fastest and easiest way to get money.
- Cons: It largely defeats the basic purpose of a small business – to put money in your personal bank account.
Borrow From a Bank
Old-school loans and lines of credit were invented for situations just like this. If you have a relationship with a local bank or credit union, you can set up access to cash so you can get in the materials and labor you need to fill your orders. If not, you can still set one up – but expect it to take longer, to cost more and for approval to be less likely.
- Pros: The traditional approach, and in some ways safer.
- Cons: Long timeline for most products. Difficult to qualify for, especially if your business is in a tight spot.
Look at Online Lending
If you’re unable to get a line of credit from a traditional lender, look into online lenders. Or, if you’re looking for funds right away, this is a good option for you. In most cases, you can apply in minutes and get approved within minutes. Plus, you only take what you need and only pay back what you borrow.
- Pros: It looks at more than just your credit score and offers flexibility.
- Cons: Funds are mostly used for short-term goals instead of long-term ones.
Business Credit Cards
A small business credit card is probably the simplest and most familiar way for small businesses to access temporary funds. It works just like putting that vacation on your personal VISA, and almost every vendor in the world is equipped to take payment in plastic.
- Pros: It’s very quick to do. Plus, you understand exactly how this works already.
- Cons: It can be extremely expensive and easy to overextend accidentally.
Alternative Funding Options
If traditional or online lending don’t work for you, there are other ways of getting some extra capital. You can look into peer-to-peer loans, merchant cash advances, equipment loans and more. There are a variety of options to help your small business.
- Pros: There are a lot of options for your business, some of which may be a better fit for your business.
- Cons: A wide variety of options can be confused to navigate on your own. You may also not receive funds as soon as you need them.
From time to time, all businesses may need funding. With these seven unique ways, you should be able to gain the extra capital you need to keep thriving in your business.