Creative Financing Options For Small Business

Think "finance needed"...think "bank loan". It's a pretty traditional model that probably far too many of us were brought up with but in these far from traditional times, the options are vast...aren't they?

Today's success stories so often seem to be born of genuine creative genius, particularly with outstanding marketing, innovative product lines, and irresistible customer services packages - surely financing solutions can be equally creative?

Getting outside (i.e. somebody else's) money to finance a business can be done in only two ways ....

(1) borrow it or
(2) sell something (like shares).

Then depending on a number of variables, whether you are selling debt or equity, you may need to consider technical obligations created by state and federal securities laws (because you are selling an investment in your business). There are already an extremely broad array of techniques and methods by which both debt and equity financing is structured. You should speak with a transactional (corporate) securities lawyer in your jurisdiction to get an idea of the universe of financing options.

For business loans that range between $25-$100k that are unsecured you can go to Professional Funding.com and they'll put together credit card lines of finance. It costs $500 to apply (you get it back if they can't do it) plus around 8% of the amount you're borrowing. Its unusual but it works. Be aware that you have to have a credit score of 700+ for this to work.

There are lots of creative alternatives to traditional financing (debt and angel/VC equity) such as:

- Get customers to pay sooner, including sometimes 1 year in advance, rather than just in arrears

- Locate a business partner who finds your product/service strategic, and get their money (either in equity or revenue)

- Bootstrap

- spend little money

- Grants

- Donations (see kickstarter.com)

- Revenue

- find creative ways to quickly generate revenue to cut your cash burn rate, even if the revenue isn't in your core business

Also consider strategic relationships with mutually beneficial businesses that will consider injecting capital into the business in return for equity or profit share.

Alternative financing is creative and "no" it is not just factoring, purchase order, or equipment leasing.

Asset based lenders can create a line of credit against assets.  For example, a company has inventory, AR, machinery or equipment, these can be used as collateral for a line of credit. Also, for real estate there are products such as hard money loans or bridge loans.

Other types of financing are investors, angels, venture capitalists, and crowd funding or if you have securities, stock, life insurance or bonds, these can also be used for collateral for a loan.

If you have a banker, ask them if they have a reliable person that works in the alternative financing arena. There are options outside of banking, you just have to make sure that you are working with someone reliable.

There are options for every need you might have. All lenders want to get repaid - just like you want to get paid in your business. Thus, they look to some type of cash event for repayment. For standard business loans, they look to ongoing cash flow. For other types of financing they can look to financial assets like accounts receivables, credit card receipts, or purchase orders - all things that create future cash event to repay the loan or advance.  There are also others that do bank statement loans or micro payment business loans.

There are specific loans for specific needs and general loans for general needs. Its not about getting creative in creating loans - the real challenge comes from being creative enough to take those funds and earn a solid return (more than they cost) from them.

Lastly, just like everything in business - you have to due your diligence or you will get ripped off. But, a little homework and you can find the money your small business needs - just know that you will not get something for nothing.

The Main Problem Faced By Small Businesses In Managing Their Finances

Here are a few .....

Lack of skill. I've friends who are continually training entrepreneurs on the difference between gross profit and net profit, or between direct costs and overhead, and why these matter so much.

Inadequate support. Their bookkeepers -- and often their CPAs -- are focused on tax accounting, not management accounting. They need someone with a CFO mentality.

Poor systems. Inflexible software, hard to get the reports they need.

Intimidated by numbers. They look at a P&L spreadsheet and their eyes glaze over.

They don't know how to ask for reports that give them the handful of numbers they need to keep track of performance daily.

Or they are good at it, and do it themselves. This is a poor use of their time, and they don't get an objective outside perspective on their numbers.

They run their business to minimize profit so they don't have to pay taxes, then wonder why they can't get a bank loan.

They try to finance growth out of cash flow rather than obtaining capital from a bank or investor.

They fear debt and are reluctant to invest in their own business growth.

And finally they run the business to maximize revenue and neglect profit. They need to adopt a revenue AND profit perspective.