3 ways to finance your business without credit cards
If you’re in a cash crunch and need to find some funding for your company, here are three ways you may have overlooked.
1. Supplier Financing
Stretching trade payables from, say, 30 days to 60 days is a fairly common method for companies to improve their cash flow. Sellers are usually not too happy when this happens, and some even express their disapproval in no uncertain terms. Most businesses are small businesses and stretching the liabilities only hurts everyone in the long run. Consider this: if you rely on one of your customers to pay you within 30 days and that customer doesn’t pay for 90 days, it can significantly affect your cash flow. If this is one of your main customers, the impact can be quite severe. You don’t have the cash to pay your bills and so a ripple effect occurs down the line.
This proposal is different. If you have established a good relationship with your suppliers, it is sometimes possible to get them to agree to finance part of your company by extending your terms on a particularly large order for an extended period of time. If you are a new company with little or no history, you can approach suppliers by showing them your business plan and documentation of orders you have already received. If the seller is confident that your company will be successful and one of their better customers in the future, they may be willing to give you a break now.
Another alternative is to guarantee the seller that they will be your exclusive supplier for an agreed period of time in exchange for longer credit terms. Or you can offer to pay slightly above market price in exchange for longer loan terms. This method can be dangerous because it gives an advantage at a higher cost. When longer terms are no longer necessary, it can be a challenge to reduce the price you pay the seller.
Sometimes it is possible to persuade the seller to exchange a trade payable owed to him for a note payable instead or possibly an equity interest in your company.
2. Customers who pay in advance
If you have successfully demonstrated to your customers that you deliver your goods on time as ordered, you may be able to convince one or more of them to put down a deposit on their future orders, perhaps up to 50%. You can add an incentive by lowering your price a bit in exchange for the deposit. Or you can add a bonus: if they order 100 items, you give them 10 extra. New customers may also be asked for a deposit, especially if it is a large or custom order.
3. Trade and barter
Barter is perhaps one of the oldest forms of trade. It is simply the exchange of goods or services for other goods, rather than using cash as a medium. Trade can be directly between the two countries or trade can go through barter exchange.
The barter exchange usually works on a point system, one point for every dollar. The exchange has members who have agreed to exchange their services and products. Let’s say you need a new laptop, but the computer store doesn’t need your product/service. You earn points by bartering with those individuals and businesses who need your product/service. You earn points through the exchange. When you have enough for the laptop, you “buy” the laptop with your accumulated points. The exchange sometimes takes a small percentage of the points as a fee for its services.
Don’t be limited in your thinking about what can be exchanged. Treat bartering like any other sale or purchase. Work with reputable companies. Don’t feel like you have to give away your product. The barter purchase is reflected on your income statement as an expense. The barter sale (what you trade) is reflected as income.
Barter organizations can be found on the web, just type trade and barter organization. Many cities have local barter organizations. Contact your local chamber of commerce. The Yellow Pages also provide listings.
Use these three methods to get money for your company.
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