Here is a short article by Marco Terry with five great ideas. In class, Entrepreneurship for Transitioning Warriors, we discuss the challenges associated with finding the money necessary to start and run your veteran owned business. It is not easy. That money can be a recurring issue. Cash flow planning is critical to success and vetrepreneurs need to look everywhere. Marco Terry has some experience in this field. He is the managing director of Commercial Capital LLC, a company that provides invoice factoring, purchase order financing, and asset-based lending to small and midsized companies.
Terry writes--Getting the right funding can be crucial for growing a successful business.
Proper financing can be a tool that helps you improve your cash flow, make additional investments, and pursue new opportunities. However, securing financing may be difficult, especially for small and midsize companies.
You can finance a small or growing company in various ways. It’s a matter of knowing which financing solutions to use.
1. Suppliers and clients
You can use your suppliers and clients to finance your business – to an extent. Request payment terms from your suppliers. Thirty days is good, though you can get longer terms if your company has a good payment history. By allowing you to delay payments to suppliers, payment terms improve your cash flow — often at no cost to you.
Clients can help you fund your business by prepaying for their orders. Prepayments can be hard to get, but they are obtainable if your services are in high demand or if your product is unique. Both supplier terms and client pre-payments are cost-effective ways of decreasing your need for external funding.
2. SBA Microloans
If your business needs less than $50,000, consider an SBA Microloan. They are ideal for new and growing businesses and for companies that can’t qualify for conventional financing. Microloans are provided by specialty lenders but are guaranteed by the SBA. They often include certain planning and training requirements designed to help your business.
3. Accounts receivable factoring
A common problem for many businesses is that their clients pay invoices in 30 to 60 days. Some companies need to get paid sooner so that they can pay their own corporate expenses. One alternative to improve cash flow is to factor your receivables.
Factoring works by selling your open invoices to a finance company, who pays for them up-front. This payment provides you with funds to run your business, while the factor handles invoice collections.
4. Asset-based funding
Asset-based funding allows your company to finance its main assets: accounts receivable, inventory, and equipment. Lines secured by receivables and inventory behave much like lines of credit. Lines secured by equipment behave like term loans. Asset-based funding offers an intermediate solution for companies that have outgrown factoring but can’t get conventional financing.
5. SBA Loans and lines of credit
Companies with larger funding needs can consider an SBA loan or line of credit. These options can be well-suited for established companies that need funds to improve cash flow or to make new investments. The SBA does not lend money itself; it acts as a secondary guarantor for banks that offer the service. Your company still needs to comply with lender covenants and must demonstrate to the lender the ability to repay the funding from its own cash flow.