October 31, 2019
Of the 30 million small businesses in the United States, only half will survive for five years. That’s because 27% don’t receive the funding they need. It becomes a self-fulfilling prophecy: When a small business can’t get financing, it limits production and sales, the ability to hire employees, purchase new equipment, and/or market to customers.
A U.S. Bank study showed that 82% of small businesses fail because of cash flow problems. This is especially true for seasonal business owners, like landscapers or holiday-themed vendors, who need sustainable financing for the leaner off-season months.
Chances are, whether you run a pottery studio, a real estate office, or a hair salon, a boost in cash flow increases your chances of long-term success. Here’s how you can secure funding and several ways you can use it to maximize small business growth.
3 Ways to Secure Small Business Funding
1. Small Business Loans
When looking for financing, many small business owners look to small business loans backed by the Small Business Administration (SBA), called SBA loans. Whether it’s from a local credit union or a nationwide bank, these loans can provide access to much-needed capital, although approval is not guaranteed. In fact, you could be denied a small business loan because of bad credit, not enough collateral, or even incomplete paperwork. You could also be denied a loan if you’re just starting out, or if your business is considered risky, like a restaurant or cafe.
In addition to the possibility of being turned down for a small business loan, you’ll also be agreeing to take on debt, with varying interest rates and repayment time periods based on your small business’s unique circumstances. And depending on how your small business fares in the coming months, particularly if your projections don’t align with real results, this debt could become an additional strain on your operations.
Nowadays, many small business owners turn to crowdfunding to launch or sustain their small businesses. Crowdfunding is the process of requesting money online, often via your social media networks, to underwrite a project, and it typically comes with a specific monetary goal and obligations based on the donation.
For example, let’s say you want to launch a catering business. You could start a crowdfunding campaign using a site like GoFundMe with a goal of getting $10,000 in donations by the end of the month. Perks could include a homemade dinner for each person who donates $100, or weekly dinners for a month for donations of $1,000.
If you reach your $10,000 goal, there are no monetary repayments, but you’re on the hook to deliver what you promised and you may face tax obligations. Additionally, there’s no guarantee your campaign will succeed, leaving you where you started: without funding.
3. Home Equity Investment
If a small business loan or crowdfunding don’t appeal to you, you may be able to secure financing for your small business by accessing the equity in your home. A Hometap Investment, which enables homeowners to quickly access funds without debt, monthly payments, or interest, could be an attractive way to support your small business.
Unlike a small business loan, your home equity investment won’t impact your credit score. Unlike crowdfunding, you won’t have to hustle for donations or take time and resources away to fulfill donor rewards. And, unlike a home equity loan or home equity line of credit (HELOC), you’re not putting your home at risk. You’ll simply get the funds you need, fast, so you can reinvest in your small business. Your investment is settled when you sell your home or buy out the investment.
How to Use That Funding to Accelerate Small Business Growth
Once you’ve decided which funding method makes sense for you, you’ll want to use your funds in a way that helps maximize your business growth. Here are a few strategies used by successful small business owners.
Invest in professional development
Professional development, whether specific to your industry, like earning a certificate in graphic design, or general, like attending a seminar to improve your customer service processes, can boost your skills and help you adopt best practices to grow your small business. As you consider different opportunities, determine how each one will tie back to business outcomes, so you can get the best return on investment.
Boost your marketing efforts to build brand awareness
Does your small business need new customers? Use your new financing to launch new marketing campaigns, or boost existing ones, to drive traffic, generate leads, and increase sales. Depending on your business and audience, you could emphasize digital retargeting campaigns via your blog and social media, start a direct mail campaign, run ads on local radio and TV networks, or test a combination of traditional and digital marketing efforts to see what’s most effective.
Create loyalty opportunities
Alternatively, you may already have a healthy roster of customers, but need to re-engage them and encourage repeat business to boost your bottom line. Trying using your new financing to support a new or existing loyalty program, like multi-purchase reward offers, a sweepstakes for product giveaways, or refer-a-friend bonuses.
Explore opportunities to automate or scale business growth
Up to this point, manual, cumbersome, and/or inefficient processes may have hampered your small business growth. But with your newly available financing, you can bring on new systems to grow and scale quickly and efficiently, which may enable you to boost production, reduce costs, and increase sales. Opportunities could include integrating new customer relationship management (CRM) software, hiring an agency partner to manage your marketing campaigns, or opening an additional location to break into a new market.
Truly, your small business growth options are only limited by your imagination—and your access to funding. If you can get financing for your small business and minimize your debt, you’ll be well on your way to being part of the top half of small business owners who enjoy sustainable success.
See how Los Angeles homeowners are addressing the growing house-rich, cash-poor crisis and how they compare to homeowners nationally.
When it comes to small business growth, securing financing is key. But some funding options are better than others. Look beyond small business loans to avoid debt.
Building an in-law suite is sometimes more cost-effective than downsizing or moving a loved one into a nursing home. Here are four tips for financing its construction.