How to Accumulate Funding for Small Businesses

funding for small businessCapital or shall we say cash is the blood from which companies survive on. Without it, there’s no business to begin with and operations will vanish into the brink. At the same time, it is also important to acknowledge the fact that the accumulation of such resources is quite the challenging task for everyone but all the more for small enterprises and new establishments. It’s not easy but it’s possible. It’s a lot of work but its efficient use can lead to better results, profitability and growth. So how exactly does one efficiently and effectively accumulate funding for small businesses? Below are some ideas that could be of help.

1.    Accumulate with the use of retained earnings.

Retained earnings pertain to that part of equity that is not paid out as dividends to shareholders or owners but is rather retained by the company to be reinvested in its core business or to pay for any existing obligation. Within the course of a business, companies can accumulate through this but it is also important to take note that the amount retained must be lawfully viable and not disadvantageous to any party, internal or external to the company.

2.    Save up on costs and use the cuts to fund a project.

Sometimes the best way to work with limited resources is to cut back on one need and transfer that to another. There are many ways in which companies can cut back on costs without putting quality at risk. Setting up strict and reasonable standard operating procedures can help in efficiently reducing the costs of raw material wastage and utility expenses for example. Outsourcing some positions can also prove to be cheaper than hiring an in-house employee.

3.    Unlock trapped cash within your receivables.

Sometimes a business is unable to use the cash which it has already earned. An example of this is receivables. Remember that sales can also happen on credit and your customers will be held liable for future payment either in installment or lump sum depending on your agreement. To hasten collection and receivable turnaround, companies may use invoice financing as key. The invoice’s value may be advanced from an institution for immediate use.

4.    Choose a type of financing.

There are many kinds of financing out there from bank loans, mortgages, factoring, discounting, merchant cash advances and bridge loans among others. With their help alongside the other items on this list, you can accumulate enough funding for small businesses. Of course, the choice must be done wisely and not recklessly.

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The Pros and Cons of a Merchant Cash Advance

cash advanceA Merchant Cash Advance (MCA) is only one of the many ways in which entrepreneurs and business owners can increase their capital or raise needed funding to support their corporate ventures and daily operations. It allows merchants to get upfront cash in exchange for a future percentage of their credit card sales. Just like other funding schemes, the MCA has its own pros and cons. This will of course vary on a case to case basis and will depend on factors such as amount borrowed, type of your industry, the service provider and the time when you took one. Careful examination and analysis has to be done in order to make it work for and not against you. To help you with that we’ve come up with a list of the pros and cons brought by a Merchant Cash Advance.

PROS

  • It is fast. Most providers can give you your needed funds in as fast as a week’s time. As a matter of fact, there are even those that can do so two days after you have complied with the necessary requirements. This makes them a good option should you be in an emergency situation and would need the money fast.
  • An MCA is also easy to apply for. You won’t have the same hassle that it would take should you be applying for a bank loan. Instead of asking for your past credit grade and history as well as your financial statements, they are more likely to ask regarding your credit card sales for the past periods in order to ensure that you are selling enough to repay them in the future.
  • It is revenue based. This means that you repay the amount when you are able to do so. On a month where sales are low, you pay a lower rate and when the sales are up, you pay a higher one. Your payment is in proportion to your credit card sales.

CONS

  • You lose part of your business’ control. By agreeing to allow a portion of your sales to be given to the lender, you lose total control. At the same time there might be contingencies or agreements between the parties that will restrict you from doing other stuff like applying for an MCA with another company while you are still repaying the present one.
  • Interest rates are slightly higher to compensate the risk that the provider assumes. This can be shrugged off by other entrepreneurs while for some this can be a touchy subject so be sure to take a look at all the aspects of your needs to ensure that a Merchant Cash Advance can indeed work best for you.