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If your business needs cash to move forward, you may have to resort to some less-than-ideal financing options or face the possibility of having no business at all. The methods listed below may not be what your accountant would advise you to do, but they will raise cash for you if you are in a pinch.
Sell Your Assets
Lots of small business owners overlook the sale of assets as a way to raise cash quickly. While it may not be ideal to sell your car and lease one that will cost you more in the long run, it may be the only way your business will survive.
Borrow Against the Cash Value of Your Life Insurance
You can only borrow against a whole life policy, not term insurance. If you have had your whole life policy for three years or more, you probably have some cash value in it and many companies will let you borrow up to 90 percent of the value of your policy. As long as you continue to pay premiums your policy will remain intact. Loans against the cash value of your life insurance have interest, of course, but the rate will be more favorable than you would get if you took cash advances on your credit card -- a small business bootstrapping favorite. The downside: if you die during the time you have a loan on your policy, the benefits will be dramatically reduced.
When you factor, you sell your receivables to a third party -- a factor -- for cash. The factor advances you between 50 and 90 percent of the value of your receivables and then collects the money from your creditors. When the full amount is collected, the factor gives you the remaining 10 to 50 percent, less fees. Fees are in the range of 1-5 percent of the amount financed and range according to volume of receivables.
To find a factor:
The Edwards Directory of American Factors, published by Edwards Research Group, Inc., Newton, MA.
Commercial Finance Association (212-594-3490), an international and national trade association for the asset-based financial services industry, including factors.
Outsource Your Financing
Financial headhunters find investors for entrepreneurs for a cut of the capital they bring in. The two downsides are the commission paid and the fact that investors will want a hefty chunk of your business. To find a financial headhunter, ask your attorney or accountant for a referral.
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