Small Business

by Ian M. Berkowitz

Over the last few months we all have been watching the ups and downs of our local, regional and national business community.

These challenging economic times have created a flurry of questions directed by many of you regarding finding and securing additional capital for cash flow purposes and day-to-day business operational activities.

In the past I have written about the many options available to business owners either via a government loan or a conventional business loan. However, sometimes the process can be challenging and the results don’t come as quickly as you may want.

This week I am going to focus on some quick and somewhat more effective ways to raise the capital in order to keep your business afloat.

You might ask yourself; what is the fastest way to get the money I need for my business? Ironically, the fastest way is also the number one way that all business owners access business capital. The credit card that sits in your wallet is the most used mechanism for obtaining business capital and it can be accessed 24 hours a day, 7 days a week.

Widely Used

The credit card is widely used primarily because it does not require you to write a business plan, meet with a banker or even detail what you will be doing with the money or how you intend to pay it back. It can be used on line, in person or over the phone.

Moreover, it does not require you to pledge collateral or identify any specific asset for security. But, and this is a very big but, it is probably the most expensive way to access capital for your business. And if you don’t pay on time, you might be paying interest that is off the charts.

Use is sparingly and make sure to pay it off as soon as you can. I find credit cards to be used primarily for a rainy day or if you are in a real pinch.

If you use equipment or buy materials from suppliers, there are many alternatives for you. Explore obtaining credit from your suppliers with terms favorable to you in order to access additional business capital to obtain the material or supplies you need.

Supplier financing is easy and very worthwhile. It gets you the materials you need and provides the supplier with a steady flow of business. Suppliers are very familiar with extending credit and should have no problem extending credit to you.

From Home Depot, Office Depot, restaurant depot, or any other depot, you can get your supplier to assist you with your business capital needs by extending financing terms to you at rates more favorable then conventional lenders and much better than credit cards. It is a win-win for the two of you.

Extend Credit

If you use equipment, then ask the equipment dealers to extend credit to you for purchasing items or if possible look into leasing that same equipment from the dealer, which is a form of financing as well. Leasing works well for all types of equipment, from cars to copiers.

Most often, leasing allows you to use less of your own money out of your pocket and provides you with a stable fixed payment for financing your equipment. Sometimes, leasing also gives you the ability to upgrade your equipment to the best and latest without any money coming out of your pocket. Most equipment dealers are eager to take back equipment in order to put new equipment into the marketplace.

Finally, if your business carries high receivables or you have substantial credit card transactions running through your business, then receivables financing or factoring may be an option for you.

Many finance companies are ready, willing and able to take your receivables and pay you cash for them on the spot. There are also finance companies that will examine your credit card transactions and loan you money against your future sales. They pay you in cash up front and then get paid out of your credit card sales as they roll in.

Both of these types of financing programs are worth exploring but please read the fine print so you can properly evaluate what you are paying for and how much it is truly costing you to obtain the money.

Ian M. Berkowitz is a former attorney/advisor with the United States Small Business Administration in Washington D.C.  During his tenure with the Federal Government he specifically worked in the areas of disaster relief for homeowners and businesses and government contracting.  He is currently a practicing business and real estate attorney in Boca Raton.  In addition to his law degree, Ian also holds a Master’s Degree in Government from The John Hopkins University.