There are some key steps you should take if your business needs an influx of cash and you can't get a loan.
Drumming up enough capital to get your business up and running is no easy feat, and millions of entrepreneurs have attempted to secure a loan only to find out that willing creditors are few and far between. Nevertheless, your startup or existing business may find it utterly necessary to get a sudden infusion of capital, and the failure to attain financial flexibility is tantamount to defeat in a competitive marketplace.
Luckily, not getting a business loan doesn't have to spell an end to your business. Here's what to do if you can't get a business loan, and why being turned away isn't always the end of the world.
1. Understand why you were turned down.
Before delving into alternative means of raising cash for your business, it's worthwhile to explore exactly why you were turned down for a business loan in the first place. While many entrepreneurs may throw their hands into the air and give up after being denied a loan, others realize the problem that prevented you from gaining access to a line of credit initially may be solvable later on down the line. If you never know why your business was rejected, you can't hope to strengthen your weak points and return later, more confident and assured of your success than ever before.
It's thus worthwhile to peruse some common reasons that businesses are turned away from loans, as this will help you successfully petition for financial assistance in the future. When you've truly exhausted your supply of creditors, however, and a business loan simply isn't forthcoming, you need to get down to brass tacks and pursue alternative measures of establishing or broadening your commercial empire. One excellent, and uniquely modern, method is to rely upon is crowdsourcing. This option is easier and more profitable today than it was just a few years ago.
Crowdsourcing, as the name implies, depends upon sourcing your funds from a large crowd of people. In most cases, it means taking your case directly to the public and reaching out to thousands, or even millions, of people at once by harnessing the power of digital technology. Social media campaigns and digital marketing efforts have already demonstrated that crowdsourcing can be incredibly effective. The benefits of crowdsourcing are incredibly diverse, such as when NASA relied upon it for idea generation. However, business owners will be interested in the ability of crowdsourcing to drum up huge sums of cash from the popular approval of everyday people who want to see your dreams turned into a reality.
Crowdsourcing your business's capital needs will only work if you can persuasively convince a mass audience to get behind your plans. This is why crowdsourcing is particularly popular amongst startups that have taken to labeling it "peer-to-peer investment," though even well-established business owners can rely upon the method if they know what they’re doing.
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2. Be careful when harnessing digital technology.
Despite the allure of using digital technology to solve your financial needs, business owners should understand that this technology must be wielded carefully and with great caution. This is because the digital world is rife with scandal and opportunities to diminish your brand; if your crowdsourcing campaign inadvertently reneges on promises made to the funding public that is making your project a reality, for instance, you could end up with a public relations disaster on your hands as angry investors boycott your business. It is critical to always consider all of the options available before finalizing your decision on how to fund your business.
This isn't to say that digital technology isn't often a godsend for businesses in need of alternative financing; as a matter of fact, online lending has been spiking in popularity recently. The popularity of online lending has grown so much that some are beginning to mull over whether banks should be worried about this ever-growing trend. More standard means of raising money, like getting a business credit card, are also rising in popularity as traditional business loans become more difficult to acquire.
We can expect online means of raising money for one's business to keep ticking upwards in popularity, especially as more startups join the marketplace. Entrepreneurs and professionals with limited credit histories will find it frustrating, if not downright impossible, to secure a hefty business loan on favorable terms, so the proliferation of digital technology that enables greater peer-to-peer investment should largely be viewed as a win for everyone in the business community. Still, it's imperative to remember that you must be cautious and meticulous when dealing with digital sources of money if you don’t want to end up getting burned.
3. Bolster your cash flow.
One of the most important things to understand is that healthy cash flow is essential towards attaining a line of credit. After all, those who are lending you huge sums of money need to have some reassurance that they can reap a return on their risky investment. Demonstrating that you're capable of bolstering your cash flow ahead of receiving an influx of capital is the only surefire way for any business owner to prove to potential investors that they have the capacity to take a loan and turn it into long-term profitability for everyone involved.
So, how does one go about bolstering their business's cash flow? First and foremost, cut down on any and all pre-existing debt you have. Few creditors will be willing to give your company the money it needs to survive if you're just going to use it to pay off debts to other investors. Learning how to properly manage and increase your small business's cash flow is an essential element of long-term economic success in a competitive marketplace.
In that vein, you should be asking yourself how you intend to cut the fat off your business. Every enterprise in history has some waste hidden beneath the surface. You may be relying on outdated or inefficient technology, or perhaps your workforce needs some paring down. Whatever it may be, looking at your current business setup and determining ways to cut your costs by removing unnecessary elements from your business's structure is going to be necessary to get by without a serious business loan to prop you up.
4. Know what it will cost.
Finally, those who shun traditional business loans, or find themselves unable to attain one, need to understand that alternative financing means are alternative for a reason – they often come with particularly high costs. If you have to rely on a third-party lender because a bank or more serious financial operation won't give you the cash you need, it's only natural for them to charge you steep interest rates so they can reap a return on their risky investment. If you fail to factor in the cost of alternative financing from the get-go, you may end up digging yourself deeper into a grim financial hole.