Believe it or not, north of 94% of all new small businesses are going to fail within the first five years of their existence.
On top of that, most small businesses say that a lack of funding is one of the top three reasons their businesses full up shop sooner rather than later.
Combine all of this with the fact that most traditional lenders (like your banks and credit unions) only ever approve 30% or so of business loans – which means seven out of ten entrepreneurs go without funding – and it’s easy to see why the small business graveyard is always filling up.
Thankfully though, you don’t have to hope to be one of the 6% of small businesses that make it past five years even if you are having a tough time getting the funding that you need.
There are plenty of options for early-stage businesses to secure the cash and capital necessary to keep their operations going, to handle cash flow issues, and to take advantage of new opportunities – and we break down the five best options below.
The Trouble with Traditional Lenders
Before we really dig deeper into the five best funding solutions for younger businesses, like the kind of financing you can take advantage of through Excel Capital Management, it’s important to highlight why working with traditional lenders as a relatively new entrepreneur is so challenging.
You see, banks and credit unions are really only ever interested in extending business loans to companies that have a consistent track record of proving that they might not really need this money as badly as a new company does.
Yes, you’re reading that correctly. Your business has the greatest odds of getting a loan from a bank or credit union if you have a financial situation that shows you don’t really “need” the money to begin with while those that do need cash to grow, to capitalize on an opportunity, and to meet their businesses needs are left sitting on the sidelines.
On top of that, a bank and a credit union really want to see at least five years of success under your belt already. They want to know that you are going to be able to repay your loan without cratering your business at the same time, and they want a lot of extra security that some entrepreneurs find a little bit unreasonable.
At the end of the day, getting around this five year rule is next to impossible.
But as we highlighted above that doesn’t mean that you are going to be completely out of luck.
The Five Best Funding Solutions for Younger Businesses
Below we touch on our favorite five funding solutions for businesses that haven’t yet been open for five years, businesses that range from brand-new startups to somewhat more established companies that are still trying to get over that five-year mortality rate.
Let’s dig right in!
Invoice financing essentially gives you an opportunity to borrow money against the cash that you have outstanding from your customers.
In its most basic of terms, you’re basically using your outstanding invoices – your Accounts Receivable – as collateral to secure financing that you might not have been able to take advantage of otherwise.
Companies that offer invoice financing options usually put some small restrictions on how you’re able to use your money, though – using it for cash flow purposes, to pay your payroll and suppliers, and to reinvest in your business – but this is definitely easier to secure than traditional bank loans, that’s for sure.
Business Lines of Credit
The beauty of a business line of credit (sometimes called an LOC) is that you’re going to have a lot more freedom and a lot more flexibility when it comes to how you use this money moving forward – as well as how much of this LOC you use, too.
A nontraditional lender like Excel Capital Management may offer you a business LOC of $300,000, for example. You’ll immediately have access to up to $300,000 to use as you see fit for your business, but you won’t have to pay a principal or interest on that full $300,000 if you’re not using all of it.
Instead, you might only use $50,000 to secure new hardware or technology for your company from that $300,000 pool of credit. You’ll pay interest on that $50,000 (and have to repay the principal), and will still have the opportunity to dip back into $250,000 of LOC if you need it later down the line.
Unsecured Business Loans
Unsecured business loans are some of the most sought after business loans in the financing industry today, and for good reason.
Working identically to personal unsecured business loans, you won’t have to put up any cash or collateral to get a loan for your company – and you’ll have a lot more freedom about how you use the money going forward.
At the same time, you are going to have to start repaying your loan almost immediately as well as interest entire unsecured business loan amount. Combine that with the fact that you’ll need pretty good business credit (and maybe even personal credit) to get this kind of long in the first place and it may or may not be a solution for you.
Equipment Financing Options
Equipment financing options give you a chance to replace, upgrade, or completely overhaul the equipment you use in your business every day without having to cripple your cash flow situation at the same time.
This type of financing is specifically intended for the purchase of equipment, though, which means the flexibility of this nontraditional business loan is a little bit limited. Of course, if you are intending to buy new equipment or upgrade the equipment you already have this is a loan tailor-made for your situation.
Best of all, as soon as you pay off your equipment financing package you only equipment out right. This becomes a valuable asset for your company that you can borrow against later down the line or sell with your company to increase its value.
Merchant Cash Advances
The last funding program for younger businesses we want to touch on in this quick guide are Merchant Cash Advances (MCAs).
With this type of financing you essentially “sell” a slice of your future sales upfront, getting a lump sum of money in a hurry so that you can use that cash and capital when you need to while repaying the loan with a small portion deducted from each individual sale you process through your merchant account.
This means you’re going to be repaying your loan daily or weekly (and sometimes even more frequently than that) which automates the process quite a bit, but it also means that you’re going to have a much easier time securing this kind of financing because your future sales act as collateral to get you the capital you need right now.
At the end of the day, if you are a younger business looking to grow, looking for help with cash flow, or looking to take advantage of nontraditional financing packages you want to check out the offers from Excel Capital Management today.
Check out the resources they have available on their website right now.
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