Paying for business expenses, especially when your revenue is lower than normal, can be difficult to pay for.
Rather than having their business go bankrupt, there are a few things business owners can do to help to save money, lower expenses, and get money quickly to help cover their business expenses.
1. Purchase Order Financing
If your business works with selling items or working on repairs, carpentry, or another job that may require ordering supplies before a client pays for the job, then your business could benefit from using purchase order financing services for your expenses.
So, how does this work? There are seven basic steps.
- A customer makes an order from your business and your business estimates the supply cost and contacts a purchase order financing service with the cost.
- The service checks the credibility of both your business and the client’s ability to pay for the service.
- Once approved, the service will pay the business’s supplier for around 70-100 percent of the cost of supplies.
- The supplier is paid and your supplies are delivered.
- Your business completes the job and invoices the client.
- The client pays either the purchase order service directly for the order or pays your invoice.
- Once the purchase order financing is paid and takes a percentage as of the invoice to pay for fees. Your business then takes the rest of the profit.
In short, the business gets the purchase order financing service to pay for the initial supplies, your business completes the necessary work, the client pays the invoice, and your business pays back the purchase order financing service for the supplies plus an additional service fee.
2. Short-Term Loan
If you need to pay off items you already have, pay your employees, or pay for emergency services, then taking out a short-term loan might be the solution to all of your problems. Like any other type of loan, you will need to have a good credit score for a bank or another lending institution to give you the loan.
How long does it take to pay off a short-term loan? This depends on a few factors. The three things that matter most when it comes to figuring this out is the total loan amount, the interest rate, and the monthly payment.
Short term loans can take as long as a few years or as little as a few months to pay off. If your lending institution did not tell you how long the loan will take to pay off, or if you are considering taking out a short-term loan and want to know how long it will take to pay off, then you can use an online loan calculator to do the math for you.
3. Business Credit Card
If you know that your business will need extra money often, then it might be a good idea for you to invest in a business credit card.
It should be noted that business credit cards are different from a credit card that an individual will have. However, they both work in basically the same way.
A business owner or employee can use the card to pay for things upfront and pay off the items later with some added interest. This can be a great way to pay for supplies or to pay for vendor services.
It should be noted that business credit cards are not usually used to pay for employee paychecks. Technically, it could be done, but it would be much easier to take out a short-term loan to pay employees. Generally, business credit cards are best used to pay off items or services.
Self-funding or bootstrapping involves using your personal financial resources to fund your business. Examples of self-funding include borrowing from friends and family, taking money out of your savings account, or taking out a loan against your 401k.
The advantage of self-funding is that it is often less expensive than other funding methods and you maintain complete control of your business. The downside is that you are putting your personal finances at risk.
Crowdfunding involves soliciting funds from the public.
Crowdfunders are not considered investors, because they do not receive ownership shares in your business. However, it is common to offer incentives, such as gifts or early access to products.
The upside to crowdfunding is that it is inexpensive and low risk. In most cases, there is no obligation to compensate crowd funders beyond whatever perks you have promised. However, you should always familiarize yourself with the rules and regulations of the crowdfunding platform you are using.
The downside is that there is a lot of competition for funds and it may take a lot of time and effort to get your project noticed.
6. Venture Capital
This option is best suited to businesses with high-growth potential that need a temporary influx of capital to cover short-term needs.
Venture capitalists invest money in businesses in exchange for equity in the business. The benefit of this method is that it isn’t a loan, so you don’t have to pay the money back and as long as you hit your milestones, the investors are likely to provide you with ongoing financial support.
The downside is that you have to give up ownership share and most venture capitalists will want a seat on your board.
There are many types of grants available to business owners. The Small Business Administration can help you identify government grant programs that you may be eligible for.
Additionally, local, state and private grants are available to businesses that meet certain criteria, such as being owned by women, minorities, or veterans or serving an economically disadvantaged community.
8. Corporate Programs
Corporations, such as Goldman Sachs, offer financing programs to small businesses that can be used to cover both short and long-term expenses.
These programs include loans at lower interest rates than traditional financing and many are open to businesses that may not qualify for other types of financing.
9. Home Equity Loans
If you own a home that you have substantial equity in and you have a credit score above 700, you can borrow money against the equity in your home.
The benefit of this option is that you can access substantial funds at reasonable interest rates and pay them back over time without giving up any ownership shares in your business. However, if your business fails, you could end up losing your home if you can’t pay the loan back.
10. Use Micro-Loans to Boost Business Expenses
If you need less than $5,000 to cover your expenses, consider seeking funding from a micro-loan organization.
Many of these lenders prefer to work with low-income business owners or companies that are doing something for the social good. Check their websites for specific qualification requirements.
If you have a cash flow shortage because you are waiting to get paid and you need to buy yourself some time, try negotiating with your creditors. You may be able to extend the time period for repayment of some of your debts.
The only real risk is that some of your vendors may be hesitant to work with you in the future if they think you are having financial trouble, but it is better to work out payment arrangements than to miss payments.
If you are looking for a bit more of an out of the box solution, consider entering business contests. Numerous organizations offer business contests that focus on themes such as green products, female entrepreneurs, and technology.
There is no guarantee you will win, so this isn’t a good source of income to rely on, but it could be a way to boost your cash flow and possibly get you some attention from potential investors.
13. Product Pre-Sales
One way to avoid waiting around for customers to pay you to bring in cash is to pre-sell your product.
The main benefit is that you get the money upfront and you can start using it to pay your expenses right away. The risk is that you have to be able to follow through and deliver the products you have sold to customers on time.
14. Alternative Lenders
If you are having difficulty qualifying for traditional business loans, consider working with an alternative lender. Many of these lenders offer financing that is available to business owners with poor credit or other issues, but interest rates may be higher and you need to do your research to ensure the lender you are working with is a legitimate business.
Some online lenders in this category can provide funds in as little as 24 hours. Because the interest rates may not be as competitive as traditional lenders, it is important to borrow only what you need and can repay. You don’t want to further damage your credit by defaulting or paying late.
If your business needs cash quickly, then taking out a short-term loan, applying for a business credit card, or using a purchase order financing service could be in your business’s best interest.
This article gave some basic information on each of these ideas, however, make sure to do some added research to find out which of these options, if not all three, are best for your business’s needs.
Disclaimer. The views and opinions expressed here are those of the authors. They do not purport to reflect the opinions or views of IdeasPlusBusiness.com.
Any content provided by our bloggers or authors is of their opinion and is not intended to malign any organization, company, individual, or anyone or anything.
For questions and inquiries on the blog, please send an email to the Editor at ideasplusbusiness[at]gmail[dot]com. You can also follow IdeasPlusBusiness.com on Twitter here and like our page on Facebook here.
This website contains affiliate links to some products and services. We may receive a commission for purchases made through these links at no extra cost to you.
Paisley Hansen is a mother of three and a small business owner. She spends her time caring for her children and taking her business to the next level. When she’s not busy working or taking care of her kids, you can find her at the gym or curl up with a good book.