We here are not against conventional funding, but what we want to share here is that there are other ways where you can bridge the gap of funds and its requirement for your Startup. Startups do face a cash crunch . No one escapes this phase . But then there are other ways to solve such dicey phases of your Startup .
We have here outlined some problems & its possible solutions which a startup can sort to in such cases :
Tight Cash Flows is a major problem which a Startup faces. Startups commonly seek equity financing to help fix cash flow shortfalls.
Solution For Tight Cash Flow is to obtain Vendor credit
Paying vendor invoices in 30 to 60 days gives companies use of that cash for 30 to 60 days. It is the equivalent of getting short-term, interest-free financing.
Startups can get credit from vendors by starting small and asking for increases. Ask for a small amount and a short payment period. Instead, they get credit from their vendors which allows them to pay in 30 to 60 days. This business practice is common.
Pay all of your invoices a few days before they are due. Once you have built a good track record , ask for an increase. Repeat this process until you reach its limit.
Another Solution for Cash Crunch is a to manage Receivables financing
So if you are a vendor, these terms can put you in a difficult position. Offering credit can create cash flow problems for growing startups, especially if you don’t have an adequate reserve.
Your startup can bridge this gap using invoice factoring. One way to mitigate the costs of financing your invoices is to ask your vendors for an early payment discount. This arrangement can provide a 2 percent discount if you pay in 15 days, rather than in 30 to 60 days.
Another Problem which Startups do come across is to obtain Funds for operations and growth i.e : Working capital requirement. Startups often need funds to grow.
Revolving lines of credit are one of the most flexible financial products. They can be used to pay vendors, meet payroll and make investments as needed. Thus, they are an ideal source of financing for many businesses.
Startups can face the problem of getting a line of credit. Most banks provide lines of credit only if the client has assets and revenues to repay the line. A line of credit can be a great solution for later-stage startups that already have some traction.
Seeking Term loans is another option for startups to manage Working Cap requirement. Some non-banking finance companies offer short-term loans based on cash flow rather than assets. These loans have simpler underwriting guidelines than bank loans. You can usually get these loans if your credit is reasonable and if your business has a track record of profitability. Lastly, the income produced by your business must be sufficient to justify the loan.
In case your Startup is manufacturing a product , it may need funds to buy a machine / equipment for production .
Equipment leasing is the easy route to follow in such cases . Few startups use equipment leasing, if you need to buy equipment for your startup, consider an equipment lease.An lease purchasing allows you to spread the cost of the machine / asset over a period of time.
There are two types of leases Operating leases are like renting equipment. You pay a monthly fee for using the asset. Once the lease is over, you return the asset / machine. Another is the Capital leases enable you to purchase the Asset at the end of the period.
Not all Startups may hence have to look for Venture capital investments / angel funding. Your Equity may remain as it is if your startup follows some types of financing with an infusion of cash without giving away Equity of your Business.