A glance through the Finance News or Business News shows how challenging the present economic climate is. It doesn’t matter if you are an established firm looking for capital for expansion or startup in need of seed money. The current state of affairs makes it hard for everyone to get the required funds. To help those in need, here are some ways one can get access to much-needed money.
- Sell your receivables to get cash. This method is called factoring and is mostly used by firms that have poor credit score. Companies like an apparel store can utilize it because they need to fill orders before they get any payment. The drawback of factoring is that it is expensive. The receivables are sold at a discount plus they need to pay a fee. The fee is a percentage of the total amount. Let’s say you pay a 2 percent fee for an advance of 30 days; then the firm will end up paying 36% in interest over the year.
- Using your retirement fund, i.e., 401(k) is another way to get funds for a startup. Any person who has been employed for a long time will have a nice nest egg; this can be used to create a C corporation. There are specific provisions in the tax code that allow this without any penalty being applied. The drawback of this procedure is the legal knowledge required to set up the organization. The best way is to hire a qualified professional to do it. Also, if the company doesn’t turn a profit or goes under you even end up losing your retirement savings.
- If nothing works, then crowdfunding is always an option. Using sites like Kickstarter.com one can raise money fairly quickly without investing too much. Just set a goal by picking out your target amount and in how much time you want to achieve. Anyone can pledge money to the project ranging from potential customers to family to friends and ex-colleagues. The drawback of this procedure is that it is not useful for long-term funding. It can give you a seed for single ideas but not the entire company. Furthermore, as the project creator, you may have to provide some incentive to the pledgers. An example is offering the product in return of the money pledged.
- Two unique methods for funding a startup or local business are to get a bank loan or use a credit card. Though most banks have become very strict when it comes to lending money to firms, there are some that offer loans to small businesses like Bank of America and J.P. Morgan Chase. Using the credit card to fund your business is the best idea if it is done responsibly. It should be used sparingly like when there is a cash flow jam. If you do not pay back the credit card bill, then your credit score will take a big hit. Even paying the minimal amount will dig you a hole that will be impossible to get out of.