Global crises, such as today’s coronavirus pandemic, hurt the economy in more ways than one. As you’ve witnessed, the healthcare industry has plummeted. The increased risk of the public getting infected has also led to the temporary closure of businesses, which has significantly affected the local and state markets.
As a business owner, you may be facing some challenges in your company’s finances right now. There’s no money coming in, but the operating costs and bills don’t stop arriving. You must find a way to keep your company afloat in the midst of this recession.
Banks may be less inclined to provide funding support for small business owners because of the heightened risk of payment delays or, worse, bankruptcy. Fortunately, there are companies that still offer financial aid.
Here are some business financing options that you can consider during times of recession:
1. Cash Advance
One of the quickest ways to get funds is by applying for a cash advance. Some companies, like Nav.com, provide merchant cash advance. The process is relatively straightforward. For most lenders, you can apply on their website and receive a confirmation in a few hours whether your application has been approved or not.
Most cash advances are also flexible in terms of use. Lenders aren’t too interested in knowing how you plan on using the money as long as you can repay your debt on time. This arrangement is different from mortgages or car loans, where you have to specify your reasons and spend the funds accordingly.
You must be aware that most cash advances have a shorter loan period, so take this aspect into consideration when applying for one. Check the interest rate and other fees to make sure that you get the best deal.
2. Private Equity
This financial lending setup pertains to capital investment given to companies that aren’t publicly traded. The funds come from individuals and firms with high net worth. With this, you sell ownership shares of your business and have money flow inward in return.
Private equity typically entails a substantial capital, and you have to remember that the primary objective behind this arrangement is so that the investor will gain enough influence on your business. If you are uncomfortable with this idea, you can set the terms and agreements outright for complete transparency with the lender.
Venture capital (VC) is one of the well-known forms of private equity, wherein investors grant financial support to startups and small businesses. The primary factor that influences VC approval is the long-term growth potential of your company.
With this, you should prepare your business plan and show venture capitalists that your company can recover in the middle of the recession. You must outline the strategies that you will employ to achieve this goal.
Here are some approaches to help you recession-proof your business:
- Stay On Top Of Your Cash Flow
While you may have an accounting team that monitors your cash flow, you should still be able to keep track of it or at least know its current status. You must know your numbers so that you can create a clear vision and profit plan, including your lever points that signal whether you should push or pull back into consideration to the economy.
- Think Of Additional Revenue Streams
If you haven’t done so already, you should come up with more ways to earn a profit from your existing products and services. This practice is crucial in maintaining your income. Consider incorporating affiliate marketing, creating a subscription or membership plan, and earning from your website through ad revenue, as well as sponsored content.
- Cultivate Your Current Client Base
A lot of business owners make the mistake of neglecting their current customers in favor of finding new clients. However, you should actually build and strengthen your relationships with the ones who’ve bought your products and services so that they’ll continue supporting your enterprise. Plus, they’ll be the ones to stay with you even through the recession.
- Shape Your Company For Selling
Even if you aren’t planning to sell your business any time soon, thinking about it this way can ensure that you build your enterprise to run autonomously. When the different departments can function independently, you can step back and look ahead toward the future of your company.
- Consider Getting A Business Credit Card
As an entrepreneur, you should always be prepared for the future. This means putting into consideration the risks that you might face. Secure financing before you need it and an excellent way to do this is to apply for a business credit card. This way, you don’t drag down your personal credit rating during times of financial crises.
3. Angel Fund
Another excellent way to finance your small business is by seeking the help of angel investors. The setup is similar to the one with venture capitalists, but this type of investor is typically easier to persuade to lend you money. Sometimes, they don’t even ask for debt repayment, opting instead for shares in your company.
An added benefit of angel investors is that they can give you guidance on how to run your business. You can think of them as mentors who care about your company as much as you do.
4. Factoring
Factoring is another approach to business financing in times of recession. This process entails selling your accounts receivables, such as invoices, to another company at a discounted price. The arrangement is used by business owners to accommodate their present and urgent cash needs.
Three parties are involved in the process. The factor is the third-party entity that purchases the receivable, while the one who sells the asset is the original owner. Then, there’s the debtor, who has an obligation to make the payment.
Conclusion
Financing options are available for small business owners who need funds to help tide their enterprise over until the end of the recession. You can apply for a cash advance, private equity, or angel fund for financial aid during these tough economic times. You can also sell your accounts receivables if you have urgent cash needs.
Infographic created by Clover Network
