Need a new salesperson or piece of equipment? Want to develop a new product or unleash a new marketing campaign? Well then, you probably need CASH or a capital injection.
Let’s address a few ways to fund these areas and then explore, in more depth, ways these funds could be used.
A capital injection is an investment into to a project, company, or investment, typically in the form of cash, equity, or debt. These funds can be obtained from a variety of sources and in many instances, a combination of these sources.
- Banks are the most typical and common place business owners start when in need of cash. Many business loans are insured through the SBA (Small Business Association). This allows the bank to assume less risk and still provide the business owner an opportunity to fund their business growth.
- Venture and Angel Investors – Both venture capitalists and angel investors invest money in businesses in exchange for equity—but angel investors tend to invest lower amounts earlier in the fundraising process, while venture capitalists invest more money (and require more equity) later in the fundraising process. They also tend have different levels of involvement in the operations of the business.
- Family is typically easier, meaning no credit reports or collateral, and usually have a lower interest rate and offer more flexibility. However, asking family for money can be a tenuous proposition and may carry more hidden strings and impact than one may be willing to accept.
- Government grants, despite what the guy says on TV, are few and far between UNLESS you qualify for SBIR or STTR which fund a diverse portfolio of startups and small businesses across technology areas and markets to stimulate technological innovation and meet Federal research and development (R&D) needs. SBIR.gov can provide more information.
- Institutional Investors are typically banks, pension funds, insurance companies, hedge funds, mutual funds that pool and invest money on behalf of their members, clients, or customers.
Now that we know “where” to find money, let’s look at ways to spend it! As a growing business, an infusion of capital can be used in a variety of ways to expand your current business operation:
- Give customers what they want – Great products and services are what keep customers coming back and build loyalty, which is incredibly valuable. Invest in these revenue drivers. Let the numbers be your guide, so you’re not biased.
- Amp up your technology – The right technology can give you new insights about customers and prospects, help you find efficiencies, and protect your business from the nightmarish hacking and data-loss disasters that have crippled many companies. Explore tools like a CRM (customer relationship management system), a productivity tool or project management tool, and firewall software to protect your assets.
- Update your equipment – Investing in new equipment now, before it breaks and you lose orders and potentially customers, will save you the headache — and the greater expense — associated with an emergency replacement later.
- Pay down your debt – Consider using part of your infusion to pay down high-interest credit balances, which will help improve your business credit scores which will let you qualify for more funding, with better interest rates, the next time you’re in need.
- Cashflow Shortages – are typical and may occur as your business grows. This is where a Line of Credit from your bank can really come in handy. The number-one reason to open a business line of credit is to gain access to short-term funding. Most businesses use these funds to support financing for operational like supplies and payroll or for increasing inventory. It is our recommendation that you start, immediately, with a Line of Credit with your bank as it will not only make it easier for you to obtain a loan in the future, it will provide:
- Flexibility of Usage — you get to decide what to spend your cash on for your company vs a traditional closed-end loan (one that must be repaid in full by the end of the specified term) which is typically used to fund one specific purpose, like a piece of equipment.
- Access to Cash on Demand — a revolving credit line enables you to source funding at any time you need to keep your business running smoothly, day in and day out.
- Flexible Payment Terms — similar to a credit card, you have options of paying a minimum amount vs. a set monthly payment that could potentially present a challenge.
- Builds Business Credit —Using a business revolving line of credit allows you to build a positive payment history that appears on your company’s business credit report.
So, as you continue to grow your business, complete your financial projections, and build your strategic plans, be sure to look to the costs associated with this growth. And, do not wait too late to establish the path to your capital injection.
