Getting the Finances to Fund Your First Year of a New Business

When you first started your new business, things likely were going well. You probably set aside a few months’ worth of expenses, had a plan in place and the community was even excited to have something fresh and new. However, many new business owners start to run into trouble after the fourth month of operations.

Cash flow might be scarce during this time as you’re still building your customer base. Funding that you had on hand starts to dry up. Unfortunately, the banks won’t always issue a loan to a new business or require paperwork that most new businesses cannot provide. This can put small businesses in a real bind. Fortunately, there are several ways you can get the working capital to fund your first year in a new business.

Get Investors

One way to infuse some cash into your business is to seek out investors who want to provide you with some cash in exchange for a percentage of your sales. This may sound like a good idea, but keep in mind that they will also likely want a say in how your business is run.

If you are like most small business owners, you don’t want to work for someone else. More than likely, you want to be the one in charge of your business. When you take on investors, you are no longer solely in charge of the day-to-day decisions.

Ask Suppliers for Longer Repayment terms

Another way to free up funds during your first year is to ask suppliers to give you longer repayment terms. If the typical invoice from a supplier is Net-30, meaning it is due 30 days after receiving the invoice, then you could ask for 60 or 90 days to pay. However, keep in mind that you will owe two or three times as much and the invoices will begin to pile up.

Also, suppliers may be reluctant to provide these terms to a new business they do not have an established relationship with or which does not have a track record. If a stranger came up to you on the street and asked for a loan, you’d be reluctant to give him any money, much less wait longer for him to repay it. It is the same premise asking a supplier who has never worked with you to wait for his money.

Take out a Merchant Cash Advance

A merchant cash advance (MCA) has some real advantages for businesses finishing out that first tough year and figuring out the best ways to address cash flow problems. First, you can gain access to the money much faster than from a bank.

Furthermore, an MCA is paid back based on your sales receipts for credit cards and debit cards. So, if you have one slow month, you will only pay a percentage of your sales and then make it up during the busier months when you pay a percentage on a higher sales total.

MCA lenders are more willing to work with a business that is say eight months old, than a local bank is. We believe in small businesses.

Whatever alternative you choose for your business cash flow options, make sure you can live with the drawbacks of that option and that you’re making the best decision possible for your company’s future health.

 

 

Disclaimer: A merchant cash advance is the purchase of future credit card or debit card sales and is not a loan product.