Businesses cannot rely on cash alone to sustain their operations. Most companies supplement their receivables with financial options, including lines of credit, loans and outside investors. In a tough economy, your business may find that one or more options are closed to you; therefore, going with a variety of choices can ensure that you never lack cash to meet payroll, pay your own accounts and fund your operation.
- If you are an established business with sufficient capital, banks may be willing to extend you a line of credit. Unsecured lines charge a higher interest rate, and the line (credit amount) might be lower than what you need. A secured line of credit gives your business access to a much larger amount of money and at rate that is significantly lower than what a lender charges for an unsecured line. That latter option is secured by your company's collateral, which means that your lender sees you as a partner in sharing risk. Thus, you can have more money available to buy equipment, expand your business or pay for inventory. Discuss with your management team the best approach for establishing a line of credit.
- Unlike a line of credit, where you can access funds as needed, a business loan gives you a lump sum of cash right from the start. Most business loans are secured, which means you'll pay a lower interest rate and have access to more money than through an unsecured loan. But that also means that you'll need to start using those monies immediately and begin paying back the loan with interest almost immediately. Compare a business loan with a line of credit; speak with your lender about what options are available to you.
- Though thought by some as being the answer to what ails their business, very few angel investors have the deep pockets you might expect. Still, if you have a business or product idea that is unique, an angel investor might be interested in contributing $10,000 to help fund what you do. Ask family members, friends and business associates if they'd be willing to invest in your business.
- If you own a business start-up or if you are looking to bring an all-new product to the market, a venture capitalist (VC) might be the best financial option for your operation. However, in exchange for an outlay of cash, VCs may want a slice of your business and/or charge you a higher interest rate. But that's OK if your new drug to cure herpes does what your scientists say it will. Soon you'll be rich and able to pay off your VC. See the resource listed for a directory of venture-capital firms.
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