If your business is currently experiencing a rough patch, be it due to falling revenues or unexpected bills, adaptability is key to survival. Even if it’s is currently booming, it pays to know exactly where you can turn if times should get tough. A sudden downturn or misstep can be enough to wipe out a business permanently, even if the cause of the problem is only temporary.
That’s why it is crucial that you are able to readily raise funds in an emergency situation, should it become necessary. Read on to find out the top five alternative sources of fast cash for when your business hits a stumbling block.
1. Invoice Factoring
If your business does not have the credit history required for a small business loan, invoice factoring is likely your most promising option. This popular form of financing involves approaching factoring companies and selling your existing unpaid invoices and accounts payables to them. They will pay you upfront for the value of your invoices (minus a fee) and then receive the money from those invoices once they are paid by your customers. It’s a solid approach if you’re a company that just needs cash in the bank and you are unable to compel your customers to pay all of their invoices early.
2. 401K Loans
Loosening restrictions on how you can use your 401K have allowed business owners to borrow against their retirement assets and use the instant cash to stay afloat. The recently passed Federal CARES Act now allows anyone with an existing and active 401K account to borrow up to $100,000 from it (the previous limit was $50,000). That same piece of legislation also allows you to withdraw from your 401K for emergency situations without being slapped with the usual 10% penalty. Again, this approach is only recommended for businesses in a serious crisis.
3. Your House
Using home equity lines of credit or remortgaging is a widespread practice for securing additional funds for small businesses. If the value of your home has appreciated since you bought it, or if you own your home outright, then you can remortgage your home to free up additional cash, using your property as collateral. One major appeal of this option is that you can pursue it for free, since free-to-use online mortgage advisor services like Trussle exist to find and negotiate the best remortgage deals on your behalf. Such websites will show you all your options and break down the steps you need to take once you’ve decided. Alternatively, you can remortgage to secure more favorable interest rates, meaning that you will have more money in the bank at the end of every month.
4. Cash Advances
The logic of merchant cash advances is pretty similar to invoice practicing, although this one is more widespread and established. These are basically advances against future credit card sales receipts and are offered by most merchant account companies. Businesses in need of cash can be given an instant loan, on the condition that they pay it back from a percentage of future sales. You will likely need to provide receipts from the last few months of credit card sales, as well as paying a fee for the privilege, but it’s certainly a more savory way to borrow than many other options on the market right now.
Finally, you can apply for microloans to tide your business through a rough patch. Typically, microloans describe small business loans of under $100,000 that come with reasonable repayment terms and low or even nonexistent interest rates. Nonprofits such as Accion dispense thousands of such loans to small businesses across the US and beyond every single year, as does the Small Business Administration (SBA). The application process is notoriously grueling but, if you are approved, you have access to what might be the most low-risk form of borrowing in the world right now.
These are just some of the ways that you can raise quick cash for your business. Make sure to check out our Finance category to learn more about how you can survive and thrive in difficult times.