Small and medium-sized enterprises (SMEs) need a constant source of funds. This allows for investments in technology or ability to hire top talents to their organization. Similarly, they also need funds to perform market research and gain a competitive edge to obtain a fair share of the market. However, this can prove to be a challenging feat, particularly in instances wherein the SMEs encounter a lack of cash flow. This article delves into how SMEs can tackle a lack of cash flow and have ample funds to continuously run their business.
One of the primary ways SMEs can tackle their lack of cash flow is by applying for a small business loan. This can be from a bank or a recognized financial institution. However, the entire application process may prove to be tedious and cumbersome. This is simply due to all the paperwork required to be accomplished before the loan proceeds are released. Fortunately, though, several banks have already leveraged digital channels to simplify the loan application process, rendering an application to be approved in a couple of banking days.
Small Business Lenders
An alternative to applying for a loan from a bank is to resort to the help of small business lenders. In this case, you can explore lenders that offer an SME working capital loan. However, make sure to carefully review their terms, requirements, and loan process. More often than not, they will require a certain type of collateral, particularly if you intend to borrow a significant amount.
Make sure to carefully verify the authenticity of a certain business lender before you borrow from them. Also, compare various lenders because some impose a higher interest rate than the others. Some only offer short-term loans, while others can provide long-term solutions. The key is in specifying your needs for you to be able to go with a lender who will be able to offer you the most viable options.
Another way for SMEs to tackle their lack of cash flow is by exploring peer-to-peer lending solutions. In this case, there is no middle man involved. A SME can simply borrow from another SME willing to lend funds. Like with a traditional lender though, the amount that an SME borrows is also subject to an interest rate. The terms and conditions of the loan may also vary depending on the agreement between the two parties.
SMEs can also consider crowdfunding to augment their lack of cash flow. In this way, an SME can leverage crowdfunding platforms to garner investments from multiple individuals who believe in their cause. The investments made in this case can either be in the form of debt, equity, or a reward. Perhaps the key here is in using the right platform to pitch in your idea.
Some SMEs resort to self-funding in an attempt to resolve their cash flow challenges. In this case, personal savings and personal loans are utilized to add to the funds of the business. The latter may entail the need for you to borrow against your personal assets such as your stocks and bonds or even your real estate properties. You can also use your credit card to finance your company. But keep in mind that this is one of the most expensive ways of coming up with the appropriate funding for your business.
Self-funding also encompasses the possibility of borrowing funds from your family and friends to augment the cash flow of your business. In some cases, they take an equity stake in your company to provide more funds.
There is also the option for you to go for a leasing company. They will help when you need to finance computers and office equipment, or phone systems and vehicles. In this case, you can significantly reduce your overhead costs as leasing is cheaper compared to the acquisition of new equipment. You can also delve into the idea of trade credit, as more and more vendors and suppliers are now open to selling to SMEs on credit. This will allow you to augment your cash flow significantly.
There are several ways how SMEs can address their cash flow challenges. The ones listed prove to be some of the most viable options. The key is in defining the specific needs of your business. Not to mention using technological innovations to your advantage. This will not only provide you with a competitive edge, but it will pave the way for you to maintain positive cash flow as your business grows.
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