Getting a small business up and running isn’t easy. You’ve got to identify your niche, find the right product sources, and manage inventory carrying costs, among many other challenges.
One of the toughest is securing the funds needed to cover daily expenses and still be able to invest in growth opportunities. Let’s explore several financing options you’ll want to consider for your microenterprise.
Why do you need small business financing?
Small business owners often face hurdles in generating capital, as they lack the option to sell stocks or bonds like larger corporations. Limited access to funds prevents them from buying in bulk, leading to higher production costs per unit. The lack of purchasing power further restricts their ability to negotiate favorable deals with suppliers, which could otherwise lead to reduced costs and savings. These can affect pricing competitiveness and profitability.
Low cash reserves also make it harder for microenterprises to compete against larger companies that can provide better employee benefits and have bigger marketing budgets.
By securing more funds, microenterprises can boost their cash flow to become more resilient to ongoing business pressures, improve efficiencies, and scale.
7 small business financing options
Here are some popular ways to get the small business funding you need.
1. Inventory funding
Small businesses often struggle to get traditional financing due to limited credit history, insufficient assets to back up loans, or unsteady cash flow. Inventory funding from specialized financial institutions gives you access to financial support using your inventory as collateral. Buyers fund the inventory on consignment, so you don’t have to pay until you sell and get paid yourself.
Pros:
- Best if you have heavy inventory needs (funds are typically a percentage of the inventory).
- Doesn’t put personal assets at risk (unless a personal guarantee is involved)
- No need for a strong credit rating
- Fast processing
Cons:
- Value of the inventory limits the funds
- Rates vary from the highly competitive to the not-so-favorable. (However, Kickfurther, an innovative inventory financing platform, provides the opportunity to lock in your annual servicing cost.)
2. Traditional business loans
Business loans, typically from banks, give a lump sum that you pay back over a predetermined period. This type of financing usually requires collateral, such as real estate, vehicles, and equipment.
Pros:
- Offers low-interest rates
- Can’t be used for any purpose except those specified by the terms
- No need to repay early and in full
Cons:
- With stringent eligibility requirements.
- Lengthy application
- The loan amount depends on your collateral (Real estate and savings are preferred because they have stable prices and higher liquidity.)
3. Business lines of credit
Lines of credit provide flexible access to funds up to a set limit from which you can draw as needed. This can be secured, using assets as collateral, or unsecured, without requiring collateral but possibly at higher interest rates. You can get this from banks, credit unions, and online lenders.
Pros:
- Pay interest only on funds used
- Can be used flexibly
Cons:
- Offers lower loan amounts compared to traditional bank loans.
- Can have double-digit APRs (although they’re lower than credit cards)
- Slower turnovers mean smaller loans
4. Revenue-based financing
Revenue-based financing provides your business with capital, and, in return, you commit a portion of your future gross revenues. This means you pay back the borrowed amount plus fees from your sales until you pay back the total amount.
Pros:
- Flexible payments that adjust with your income
- No collateral
Cons:
- Not available for pre-revenue companies.
- Small business funding amount is tied to revenue
- The required monthly payments limit cash flow
5. Merchant cash advance (MCA)
MCA is small business funding that gives an amount upfront in exchange for a portion of your future income or debit or credit card sales. The lender withdraws from your business bank account daily or weekly based on your sales.
Pros:
- Fast and easy processing
- No collateral
- Sales-based payments, so you have some flexibility during slow periods
Cons:
- Fees can be very high
- Daily or weekly payments can strain cash flow
- Less regulated, which can lead to unfavorable terms
6. Credit cards
Business credit cards give you a revolving line of credit. This allows you to make purchases up to a certain limit and pay back over time, with interest on any remaining balances.
Pros:
- Offers flexible use
- Earns you rewards and cashback on purchases
- Helps your business build a credit history
Cons:
- Higher interest rates if balances are not fully paid
- May require a personal guarantee
- Costly annual fees and penalties for late payments
7. Trade credit
Trade credit is a buy-now-pay-later arrangement between businesses. Your supplier allows you to purchase goods or services on account, usually within 30-90 days. This form of credit is common in B2B transactions, such as in wholesale and manufacturing industries.
Pros:
- Improves cash flow by delaying payment for supplies
- Strengthens supplier relationships, which can lead to better terms
- No interest if you pay within the agreed period
Cons:
- May have restrictive terms (e.g., might require immediate repayments)
- May damage business relationships long term if payments are late
- Strict supplier terms can impact business operations during tight financial conditions
Choosing the best small business financing solution
To find small business funding that’s a good fit for you, evaluate your cash flow, revenue, and expenses. Determine the capital you require to grow at the pace you want, and review your financial projections. Lastly, compare your options by considering interest rates, fees, repayment terms, and your ability to meet these terms. Also, consider consulting with reputable financial advisors.
If you’re searching for suitable financing, inventory funding may be exactly what you need. But, to ensure optimal inventory funding to satisfy the demands of your small business, you must choose the right partner: Kickfurther.
How can Kickfurther help?
Kickfurther is a trusted, long-term growth partner built by founders for founders.
We’ve resolved the difficulties of managing the cash flow cycles between producing and selling consumer goods we experienced as CPG founders. We offer these distinct benefits:
- No immediate repayments – Do not pay until your product sells. Other providers may debit your account daily as part of a repayment schedule. Loans require repayment before your sales cycle has even begun. With Kickfurther, you control your repayment schedule.
- Non-dilutive – We don’t take your equity. We do not require equity in your business to access inventory funding.
- Not a debt – This is not a loan, so it does not put debt on your books, which can further constrain your working capital/access to capital or lower VC valuation.
- Quick access – You need capital when supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.
Say ‘yes’ to opportunities when lightning strikes, and stay ahead of demand with fast, flexible funding for up to 100% of your inventory. With Kickfurther, remain in full control of your business. Contact a Kickfurther expert to find out how it works.
