Hello SOTGC community,
Within the last three years small business ownership has grown tremendously, yet banks are largely averse to the risk of offering loans to fund new businesses. For new entrepreneurs this can be a problem. One of the most daunting aspects of starting a business is raising capitol.
Rather than letting the opportunity pass by, more and more new entrepreneurs are turning to alternative sources to finance their businesses. Before you step out of the boat into the water, there is one important thing you need to have in place.
Projections
If your business requires capital, you need to run financial projections—estimates of how money will flow in and out of your company. The level of detail required varies from business to business. Venture capital firms typically like to see three to five year projections for revenue, expenses, and cash flow. Projections give an idea of how much money it will take you to reach financial goals. With projections you can determine how much money you need now, and how much you’ll need in the future.
Once you have your financial projections in place you’re ready to start looking in the funding options. Here are the three most commonly used alternative financing sources:
Asset Financing: Asset refinancing is ideal for new businesses that are struggling with cash flow. When business have capital tied up in high value assets, such as machinery, automobiles or land. This process involves selling and leasing back equipment or assets in order to free up funds in the short term. For new businesses that need immediate access to high value equipment, asset financing is a great option. Business owner’s lease specified assets at a price agreed by all parties up front and it allow owners to pay for expensive purchases over an extended period of time rather than in up front all at once.
Invoice Factoring: Invoice factoring allows businesses to raise cash by selling the rights to money they’re owed for a fee. In factoring, the purchaser of an invoice takes up responsibility for ensuring payments are received, which can enables business owners to focus on generating new business and meeting existing customer demand. Invoice discounting is similar to factoring but the business owner, not the purchaser is responsible for ensuring payments after an invoice is sold.
The main advantage of using invoice financing is immediate access to needed cash rather than waiting for customers to make payments in the future. A new business that has customers but not enough cash might turn to invoice financing as a solution.
Crowdfuding: Crowdfunding as an alternative funding source for new businesses has been successful largely due to online platforms. The process is based on bringing businesses, ideas and investors together online and typically involves contributors taking a small equity holding in small-scale businesses. Technology startups and digital enterprises are particularly well placed to benefit from crowdfunding as a means of raising funds because they generate great optimism among investors. Crowdfunding also works well for established companies struggling to find funding through traditional means.
Whatever form of funding chosen for a new or existing business, the proper research must be done. There are so many alternative financing options today it’s almost impossible miss out on the dream of being a business owner. Here I’ve mentioned just a few, investigate all that’s out there and make your dream come true.
If you are a small business looking for guidance on how to receive funding, I’d love to help discuss your options to help reach your goals. Contact me at beverly@davisfinanceservices.com to set up a consultation.
