A cash-flow problem can occur in any type of business and what you decide to do during it can make or break your company. The problem is that when this occurs banks and lenders might be hesitant to hand you out of a loan. If your business has a healthy credit history then only you can secure a standard bank loan. Many banks provide emergency business loans but usually, they have very high markups and take advantage of your situation. Usually, a business emergency occurs when you have a cash flow problem. This can all be down to reasons such as;
If your profits are low and your company solely relies on the cash you accumulate from your profit, your cash will eventually run out.
Too much investment in stock and fixed assets can tie up your money.
Overtrading can also affect cash flow as your business grows too fast and you invest in other locations, for example, retail stores open up new stores at new locations and end up not being able to afford the high costs of running multiple stores at the same time.
Many unexpected changes such as loss of key staff, vehicle breakdown or accidents can also put stress on your cash flow.
Getting a bank loan is not easy in an emergency, but that doesn’t mean you cannot get one at all or there are no other ways to finance a business emergency. Today we are going to look at some essential ways in which you can finance a business emergency if you are suffering one.
Get Money from Vendors
Vendors usually make money off of you. So it is a good idea to go to them for a small cash loan for an emergency. As it is in their best interest that your products sell and you prosper, do not hesitate to ask for an extended loan with flexible terms and conditions. If you have multiple vendors doing business with you, it is a good idea to go to all of them and ask for a cash loan in such emergencies. Take advantage of them and play them against each other if need be. This is a good way of avoiding to go to the bank and getting drowned in huge markups and interest rates.
Get Money from Customers
Getting loans from your customers is also a good idea in case of a business emergency. Sometimes you can get them to finance for you. But this all depends on customers that need a particular product or a service you are offering that is better than your competitor’s.
A typical example of customer financing can be; if you are the supplier for a certain product that your customer wants, and your customer, who is larger than you, want you to bump up the production of a said certain product.
In that case, the customer can fund you and help you out with a loan.
Get Money from Friends and Relatives
Although, this is not an ideal option. But you can ask your friends and family for a small business loan in case of a financial emergency. This can be done by offering a certain amount of shares in your business against the cash you take from them. You could also ask for a short time-based loan if you don’t want to give away shares. This can greatly affect your pride, but get over it and swallow it. It can be a tough decision to take but should be given some thought if it’s a serious emergency and there are no other ways of bringing in some cash during an emergency.
Turn Assets into Money
There is always something that you can sell to accumulate cash for a business emergency. Maybe you have some extra inventory that you can part ways with? Or you have some extra computers or furniture that you can sell? Maybe you have some personal belongings that you can also consider selling? Like a 2nd car that you own.
Selling stuff can be a tough decision but it is better than selling a part of your business right? Look for stuff that you no longer need and consider selling it and turn it into cold hard cash. Although, if need be and there is no other way, you can sell off some part of your business and preserve what you have left. Selling things that you were planning to keep is a hard thing to do but it is a safer way, compared to a loan, of accumulating cash when there is a financial emergency.
Although the majority of the banks out there would think twice before giving you a loan in such a crisis, you should look into asset-backed financing. Try approaching a commercial financing company. Asset-backed financing usually works by giving you cash according to the value of assets you have given up as collateral. It is a great way to conjure up some cash in case of a financial emergency. Although you have to keep in mind that if you miss a payment, these companies will not hesitate in seizing the asset you have put up as collateral.
Sell Everything, Then Lease It Back
Another way of raising some cash is to find a leasing firm that is willing to buy your things such as office furniture, vehicles or any other of your belonging and then lease it back from them. This way you can retain your belongings in the office and get some cash out of it. Leasing is comparable to asset-backed financing. It is first based on the value of your asset and secondly, you will have to pay a bigger premium when compared to a simple bank loan. The major difference is that the leasing firm will own all the equipment and they will not hesitate to seize said equipment if you fall short on a payment.
SBA Disaster Loan
If your business has been affected by a natural disaster and you are in the disaster zone, you might be eligible for an SBA disaster loan. This type of loan gives you the ability to repair your place of business, replace office equipment and more. Although this type of loan is really hard to get, the payout is great and with low-interest rates. This type of loan can offer up to 2 million dollars for qualifying businesses.
An emergency is something that can happen to any person. Business emergencies are occurring every day around the world, where owners are having cash flow problems and it is getting hard for them to keep them companies afloat. This can also happen to you too and what you do during such situations will make or break you. You can never be too prepared, so it is good practice to have a contingency plan in place for such financial emergencies. Today we have made you aware of some of the ways you can finance a business emergency if you end up having one.