General Business

Understanding the Basics of Small Business Financing

Evaluate Your Small Business Financing Options With These Five Options

Getting started down the road of owning your small business takes a little risk and a lot of passion. Unfortunately, lenders don’t consider willingness to take a risk and passion as criteria for financing. Small business financing is the traditional pathway for companies to get started or even keep the lights on until profits start rolling in. Even well-established businesses will find themselves in need of working capital to scale their business upward.

Knowing your options is the best place to start when considering small business financing. As with many endeavors, there is a mass of ground to cover before signing the paperwork. Depending on your situation, the nature of your business, and how much money you need, will affect which financing route you’ll want to choose. Only 20% of small business owners actually qualify for a bank loan. Bank loans generally have the best interests rates and terms but are not always a viable option.

This article will break down the alternatives. Here are the top five easiest and strategic small business financing options.

1. Invoice Financing & Online Vending

For small business owners whose cash flow is contingent on customers paying their outstanding invoices should consider invoice financing. This is also a good option for business owners with uncertain credit. Essentially, these outstanding invoices are used as collateral to a lending service provider. Once your customer’s bills are settled you can pay back the lender.

Receiving a short term loan is a debt financing option for those in need of a quick cash supply. Term parameters are between 3 and 18 months with interests rates around 14%. Many choose this route because applying is quick and funds could be issued within days. In 2015, the U.S. Treasury expected that more than 70% of small business would take advantage of online vending.

Many online lenders supply both short term loans and invoice financing. Applying is simple, funds disburse quickly, and data can be integrated into your company’s accounting software.

Online Lenders:

  • LendingTree
  • Prosper
  • Avant
  • Upstart
  • Earnest

2. SBA Loans & Grants

The small business administration is a segment of the government in place to assist small businesses to get loans they typically wouldn’t qualify for. The way it works is the SBA incentivizes lenders to loan money to small businesses. The SBA will guarantee the majority of the loan based on their standards. If a business defaults, the lender doesn’t lose as much. This makes it less risky for lenders. Interest rates are usually between 6 and 13% with terms up to 25 years. The most popular loan program is the 7(a) loan.

The SBA also offers grants to businesses with scientific and research focuses. Federal grant eligibility must meet federal research-and-development goals with potential for commercialization. Branches of the SBA are in place to stimulate economic growth in these areas.

3. Angel Investors & Venture Capitalists

Startups in the process of transitioning ideas to a business plan can utilize small business financing through an angel investor. This process involves pitching your business plan to a potential investor. If the investors are agreeable they will front you the money for ownership equity or convertible debt. Angel investors are often affluent and wealthy individuals willing to risk their own money to launch early-stage businesses.

Venture capital is a similar form of small business financing. An angel investor uses their own money for investment whereas venture capitalists work for firms. This means that venture capitalists can supply larger investment amounts but the capacity of risk will be scrutinized more comprehensively.

4. Business Credit Cards & Lines of Credit

A business credit card is helpful for immediate small purchases. Qualifying is less scrutinizing, special deals on 0% introductory APRs are typical, and high credit limits are enticing reasons to use a business credit card as a method of small business financing. Purchases can automate into accounting software. This makes it easy to separate personal finances from your small business. Credit cards also have bonus rewards and cash back savings. These will add up.

Of course, there are drawbacks. Relying too heavily on credit cards can provoke late payments and overdraft penalties. This will hinder your credit score ever further. Interests rates are around 10 to 22% so if you qualify for a better rate on a loan you might consider this route to finance the bulk of your small business.

Lines of credit work similarly to credit cards. Small business owners are allocated a pool of funds that can be withdrawn from when needed in a revolving line of credit. Interest is only paid on money that is used. Once the lender is paid back, the pool is filled to the original amount. Small business owners with strong credit scores, proven business longevity, and high annual revenue qualify for this opportunity in small business financing.

5. Merchant Cash Advances and 401(k) Loans

A merchant cash advance is a quick but expensive solution in the long-term. Small business owners are advanced a lump sum loan. This is paid back through a percentage of daily credit card sales. Many go this route because there is no penalty when you have slow weeks in profit. Seasonal business can use this when profits are marginal. There is also less paperwork and you can receive funding in a few days. The difficulty with merchant cash advances is that high rates can impact your profits. APRs can be anywhere from 15 to 80%. Consider this option for the short term.

For small business owners ready for the next challenge, using tax-deferred retirement savings as seed money can get things moving. Setting this up involves incorporating and using a 401(k) as a shareholder of the business. All current retirement assets are collected into an account. There is no interest paid but the risk is high since business failure means losing entire life savings. Many entrepreneurs use this funding to buy a franchise, purchase equipment, or construct their storefront.

The Bottom Line

At the heart of entrepreneurialism are risk and potential. Using small business financing is a collaboration of the two. Whether just getting off the ground, waiting on customer invoices, or bouncing back from unforeseen circumstances, using debt financing can keep your business moving forward. The old expression you ‘have to spend money to make money’ rings true.


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Streamlining Inventory Management for Your Small Business

Small Business owners work incredibly hard. Every day there is another challenge and not every day presents a clear answer. Sometimes you have to find your own business solutions. Many of these findings come with the ease of technology. Integrating software applications are the tools for small business owners to compete. These systems will trim down the hours spent on tasks that can be automated. Regardless of your scale of operations, retailers need streamlined inventory management for small business.

Have you ever lost business when items were out of stock? Or lost money due to excess stock? How do you manage inventory during the busy holiday season? Inventory management is the process of supply chain management that maintains the right quantity of products at the right time. Using a streamlined system reduces costs. Inventory management drastically reduces the chances of having an overstocked supply room and boosts sales by ensuring you never run out of merchandise. Small business owners can also track and view inventory in real-time.

Fortunately, for Splash and Dash franchise owners, the company’s proprietary software has built in inventory management for small businesses. The terminal software ensures that the right quantity of items is available on the sales floor or in back-stock. Key metrics can determine products that are becoming obsolete and other variations in the supply chain. Seeing this dynamic in real-time allows franchise owners to avoid spending more on items that sell slowly.

Without inventory management for your small business, you are more than likely using an outmoded system. This is burning time and resources. This article walks small business owners through the fundamentals of inventory management and how it can fine-tune your business.

Get Rid of Obsolete Tools

Many small business owners use customized spreadsheets to track inventory. The reason this doesn’t work is that your inventory manager will have to spend their time finding separate data to plug into various spreadsheets. Re-stocking is also complicated when using spreadsheets. Often, a business ends up continuing unnecessary inventories because they use a single uniform inventory level for entire groups of products. For a true assessment of restocking needs, you will need to make a demand-and-supply model for each individual product.

This is a waste of time when updated inventory management tools can streamline this entire process. By automating, you can capture real-time data for information on the supply chain. This reduces overhead by eliminating unneeded inventory investments. Over time this will result in sizeable savings. With a revamped system you can use a single management tool for both demand and supply. Single-window tools display information on various inventory sources and inform managers exactly when suppliers will deliver. Inventory management software also track restocking needs. This system of inventory management for small business keeps everyone on the same page. You’ll always know what you have, what you need to order, and what is selling.

What Inventory Management Software Should I Use?

The proliferation of various software options is far and wide. The key to finding a good one is keeping it simple. Good inventory management software will inherently reduce costs and improve cash flow. Software should be capable of tracking inventory in real-time, forecast demands, and be accessible to any device. This way you can prevent product shortages for multiple storefronts from your phone. Finding a software that will integrate into your POS system is also important. Equally important is the capability of optimizing your stock room. Warehouse organization utilizing bar code scanning speeds up intake.

Standard Features Should Include:

  • Reduce Costs
  • Strengthen Cash Flow
  • Real-time Inventory Tracking
  • Key Metric Analytics to Forecast Demand
  • Prevents Production Shortages
  • Prevents Excess Stock
  • Cloud-Computing (Any Device)
  • Integration with POS
  • Optimize Warehouse Organization
  • Bar Code Scanning
  • Multiple Unit Management

The key to differentiating between software options is the type of small business you own. If you are a restaurant, you will want powerful software designed to simplify food costs. A platform that has menu cost functionality and effortless POS integration is your best option. SimpleOrder, Orca Inventory, and ChefSheet are all good places to start researching.  Retailers will want a software that synchronizes online stores with the brick-and-mortar. Quality control is a big component too. Retailers top three favorites are Square for Retail, NCR Counterpoint, and Shopify POS.

Optimization Techniques & Practices

Audit Regularly

Even with robust inventory management software, you will still need to periodically count your inventory. Comparing a physical count to what your software is reporting is vital. Some small business owners do this right after the holidays. The idea is to sell everything so you don’t have to count it. Others do this toward the end of the fiscal year so managers have a good prediction for the following year.

Use the FIFO Method

The first in, first out method is an inventory valuation approach based on the cash flow assumption that the first goods purchased will be the first goods sold. This works for most small business. FIFO is the most suitable inventory method accepted by industry accountants. Using FIFO ensures that the inventory asset recorded on your balance sheets closely match the marketplace costs.

Polished Forecasting

Precision is key. Projected sales calculations need to be based on factors like your historical sales figures, market trends, predicted growth in the economy, promotions, and marketing campaigns. This data should be available on software dashboards. Staying on top of this will simplify this task into something as simple as checking your email.

Vendor Discounts

Taking advantage of vendor discounts can be either profitable or lead to excess stock. Use your inventory management software for small business functions by identifying the right time to purchase bulk orders. There is nothing worse than liquidating excess stock after the Holidays because you overbought to take advantage of a vendor discount.

We hope this article helps you clean up the back-stock room and get to the more important parts of owning your business!


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