For some, the ability to start a small business overnight and convert hobbies into income is a dream. For others, their small business represents a financial safety net, a supplementary source of cash that’ll keep them afloat when their full-time position can’t entirely cover their expenses. Small businesses can be passion projects, hobbies in and of themselves, or the realization of entrepreneurial dreams – and with access to e-commerce spaces, anyone can start a successful small business with a relatively minimal lift.
However, small business proprietors know that even though it’s easy to access the small business ecosystem, that doesn’t mean thriving is guaranteed. Business owners face a host of issues that can send them spiraling, including inconsistent income, unexpected expenses, ineffective marketing, and an overall lack of capital. This is especially true of small businesses that have just launched, as they’ll typically have fewer resources to navigate the market’s ebbs and flows.
Leveraging Alternative Financing Options
First, let’s talk about how you can establish the foundation your business needs without seriously impacting your finances. Most small businesses cost thousands of dollars to set up, and that’s without considering the financial weight of unexpected expenses, supplier costs, materials pricing fluctuations, and more.
To get enough capital to cover the setup cost and these additional expenses, many will turn to loans from traditional banks. However, for one reason or another, that’s not always an option; prior debts, credit scores, and large down payment requirements may force you to look elsewhere. Fortunately, alternative financing options give entrepreneurs like you all the capital you need to run, with negotiable structures and payment options that will allow your business and your finances to thrive.
Some of them are:
- Revenue-based financing: This structure allows you to borrow a set amount of capital in exchange for a fixed percentage of future income. In short, the payments will always be affordable because they do not exceed an agreeable percentage of your intake.
- Crowdfunding: This financing option allows you to bypass the problem of debt altogether, allowing you to source capital from the community in exchange for specific products or perks. If you have a strong marketing campaign and have begun to develop brand awareness among different audience segments, this may be the option for you.
- Angel investment: Ever seen Shark Tank? This is where you pitch your organization to investors and sell a percentage of equity in your company for a set amount of capital. While opportunities for this kind of investment are limited, securing an investor can expand your network of connections, as well as partner you with an expert in your market.
Leveraging alternative financing options builds resilience in your business. The only thing you can expect is the unexpected, which is why it’s so important to take a proactive approach to disaster mitigation. When recession strikes, the market ebbs, or natural disasters interrupt your steady sources of income, you’ll be able to leverage those resources to keep your doors open.
Creating a Safety Net
However, alternative financing options will only provide you with enough resilience to weather minor interruptions. So, what should you do when something disastrous occurs? When you find yourself on the back foot as profits start to fall, you need a safety net to facilitate a quick, smooth recovery.
Your best defense against an uninterrupted lag in income is a line of credit. Lines of credit are tools you can keep in your back pocket, extra sources of income that you can use to smooth over hitches in income or seize opportunities for expansion. Usually, a line of credit will come from a financial services organization, with a set limit based on credit score, income, and any current debts or banking relationships. Business owners leverage lines of credit to cover inventory expenses, office spaces, unexpected expenses, and a whole host of other resources that would typically be covered by stagnating income.
It’s crucial to emphasize that this is a financial fallback, not your main modus operandi for covering business expenses. Using lines of credit in this way will keep your monthly payments at their minimum and prevent you from building debt to the point where it gets oppressive. Depending on the institution you borrow from, you may be able to leverage options like paying overtime to further manage your monthly payments and minimize your month-to-month debt in times of financial instability.
Remember that almost everyone faces instability: there are many big issues affecting small businesses — like high costs and a shrinking labor pool — causing several of them to struggle. Use the above tools, and you’ll find the weight of finances to be a lot more manageable as you keep your doors open in times of turmoil.
