It’s no secret that finding the necessary funds to launch your business is no easy feat. It is an overwhelming challenge that almost all businesses face at one point or another. Nowadays, having a billion-dollar idea is not enough. When it comes to starting a business, you should also have a bit of know-how when it comes to the various financing options that are available for you and your business.

While securing financing for your business is difficult, it’s certainly not impossible. If you are a small business owner, there are two main financing categories that you should know about, debt financing and equity financing.

What is debt financing?

Debt financing is funding that you borrow from a financial institution to be paid at a later time. Before you get approved, you would have to establish an agreed-upon interest in addition to the total amount that you are planning to borrow. Much like other types of financing, debt financing is a time-bound financial obligation that you need to pay back over a set period of time. Some of the most common debt financing examples include:

• Traditional bank loans
• Business lines of credit
• Credit cards
• Cash flow loans
• Government-backed loans

In debt financing, payments are usually made through monthly installments until the borrowed amount has been paid in full. However, it is important to note that loan term specifics would depend on the borrower’s financial standing and the type of debt financing that they are applying for. To determine if debt financing is right for your business, let’s take a look at some of its advantages and disadvantages.

What are the advantages of debt financing?

• Business owners can maintain full control of their business
• Predictable monthly payments
• Costs associated with interest payments are tax-deductible
• Debt financing can improve (or build) your business credit score
• Debt financing, if used properly, can foster business growth

What are the disadvantages of debt financing?

• Long-term debt financing usually require collateral
• Debt financing can be difficult to acquire
• Your business assets can be seized in case you default on your loan
• Debt financing can test your restraint and financial discipline
• Making payments can affect your overall cash flow

It’s a common misconception that going into debt to start a business is a bad thing. While understandable, it’s not necessarily true. As a responsible business owner, it is imperative for you to study each option to determine the type of loan that would best meet your needs.

What is equity financing?

Equity financing refers to the process of raising capital through the selling of shares of a company to investors. As opposed to debt financing, companies that use equity financing are not obligated to pay back the funds provided by investors. Rather, investors are compensated if your business succeeds and you start turning a profit. Equity financing requires a mutual agreement between a business and its investors on a set number of shares in exchange for providing capital. Typically, a larger investment means a larger stake in your business.

Hold on – we know what you’re thinking. What if investors provide more capital to obtain control of your company? If you want to maintain ownership, you would have to ensure that you at least own 50% of your company.

What are the advantages of equity financing?

• You have don’t have to make monthly payments towards a loan
• Equity financing enables you to learn from your partners
• No interest payments
• No liability in case the business does not succeed
• Equity financing gives businesses the flexibility to plan for long-term growth

What are the disadvantages of equity financing?

•     Investors will expect a share of your profits in exchange for their investment
•     Equity investors own a portion of your business which could affect its overall trajectory
•     Attracting investors can be a difficult undertaking
•     Equity financing requires a lot of planning and could prove to be costly
•     Since you are selling ownership, there could be a potential for conflict

What are the key differences between debt and equity financing?

At its most basic, the biggest difference between debt financing and equity financing is business ownership. With debt financing, you borrow money from a financial institution and pay it back with interest. On the other hand, equity financing involves selling stake or ownership in your company to secure financial backing from an investor. To better differentiate one from the other, here are some of the key differences between debt and equity financing:

• Debt financing is usually seen as a short-term solution for businesses that are struggling to improve their cash flow. Meanwhile, equity financing offers a funding solution that would give businesses the flexibility to scale long-term growth.
• Debt financing is usually seen as a riskier option for businesses as payments must be made regardless of cash flow health.
• The main advantage of equity financing over debt financing is that there is no liability to pay back investments in case your business goes under. However, companies that use equity financing are obligated to pay investors dividends when the company makes money.
• Investors or equity shareholders enjoy voting rights and have a say in the trajectory of your company while lenders do not.

Is debt financing riskier than equity financing?

As mentioned above, equity financing is typically seen as a less risky option because you don’t have to put up collateral or maintain regular payments to a financial institution. However, if you’re seriously considering equity financing, it’s important to consider that your investors are entitled to a share of your profits when your business starts making money.

Debt Financing vs Equity Financing: Which is better for your business?

The simple answer is it depends. There is no rule of thumb when it comes to finding the right funding option for your business. The truth is that the best financing option for you depends on what you need and what you can afford to repay.

For instance, equity financing may make more sense if you’re just starting out and are unable to qualify for other more traditional business loans whereas debt financing may be better for businesses that have strong financials and are more established.

Are there other alternative financing options out there?

What if we told you that there is another option out there for your funding needs? Retail businesses, small business owners, and anyone starting a business would benefit from checking out Kickfurther. Kickfurther is an online inventory financing platform that provides companies the funds that they need without reaching out to traditional funding sources. Kickfurther applies a unique twist to the crowdfunding phenomenon for businesses that want to raise money to purchase additional inventory.

Here’s how it works:

• Businesses create accounts and are thoroughly vetted by Kickfurther
• Once approved, Kickfurther’s community funds most deals within a day
• The Kickfurther community pays a business’ manufacturers to produce inventory
• Businesses then outline their expected sales periods to develop customized payment terms
• At the end of each sales period, businesses are required to submit sales reports and provide payment for each inventory sold
• Once payments have been completed, businesses can go through the process again

Kickfurther is a great financing alternative that allows businesses to pounce on growth opportunities and bulk discounts. It also gives businesses the flexibility to maintain their cash flow and explore expansion opportunities without having to worry about monthly payments. 

Conclusion

At the end of the day, the financing option that’s best for your business depends on what you need. It’s important to find the balance between the pros and cons of various financing options to make sure that your company will reap the rewards in the long run. Once you understand what you need, you can choose a financial product that would ensure your long-term success.

Learning how to accurately estimate the value of your company is important whether you’re looking to sell your company or preparing for a new round of funding. As you may have guessed, assessing the value of your business involves a plethora of factors that include analyzing your business finances and looking at other similar businesses to determine current market value. However, it’s not as simple as it sounds.

But before we dive deeper, let’s go back to basics. What exactly is a business valuation?

What is business valuation?

Business valuation refers to the process of determining the economic value of a company through the use of valuation methods. It can be used to establish the fair value of a business while looking into the management of a business, projected future income, and current market value. Here are some of the reasons why companies might need a business valuation:

• Determine the value of your company for investors
• Determine the value of your company for buyers
• For legal and/or tax purposes
• To acquire additional funding
• To make informed decisions when business planning

What are the three commonly used methods of valuation?

According to The Balance, there are three main approaches used to establish and evaluate the value of a company. Check them out below:

• Asset-based approach – Also known as “cost approach,” the asset-based valuation method determines the value of a business based on its net assets. This type of business valuation method uses two main methods: going concern and liquidation. When performed using the going concern approach, the value of a business is calculated by simply subtracting a business’ liabilities with its net asset value. For instance, a company that has $100,000 in assets and $46,000 in liabilities has an asset-based book value of $54,000. On the other hand, a liquidation asset-based approach means companies only determine their net cash once all assets are sold and liabilities are paid off. The main difference between the two main methods of asset-based business valuation is that liquidation takes various factors (such as machinery and equipment wear and tear) into consideration rather than just looking at book value.

• Earning value approach – Earnings approach is another popular business valuation method where a business’ actual value is identified by its ability to make money in the future. There are several different methods of valuation under the earnings approach, but capitalizing past earnings is the most commonly used. Capitalizing past earnings is a method that calculates a business’ anticipated profits based on current earnings and projected future income. Most use the earnings approach when they have a concrete understanding of the business and a robust bookkeeping process. Capitalization is computed using the following formula:

Capitalization Rate = Net Operating Income/Current Market Value

• Market value approach – When using the market value approach, the value of a business is found by comparing it to similar businesses that have been sold. The market value approach comes in handy when you are trying to set an asking price for a business purchase or when you are trying to justify the value of your business. As opposed to the other valuation approaches, the market value approach heavily depends on the number of similar businesses that you can compare your business to rather than quantitative data.

Why is business valuation important?

Business valuation is a great way to track a company’s performance in terms of economic value. If performed regularly, valuations can help chart the course of your business’s future by giving you an in-depth overview of your current financial standing. Not only can it be used to assess the fair value of a business for strategic financial planning, but it can also serve as a baseline for exit strategies.

Which business valuation method is best?

Like most business strategies and techniques, the best business valuation for your company depends on what you are trying to achieve. While the earning value approach seems like the best valuation method on paper, many businesses find the most success when combining this method with other approaches. For instance, when combined with the market value approach, an earnings value approach can increase the value of your company especially if you are performing well above industry standards.

What is the most important aspect of business valuation?

When it comes to business valuation, two of the most important aspects to keep in mind are income and market value. These two factors can heavily impact the value of your business regardless of the type of business valuation method you employ.

However, if you’re conducting a business valuation for the purpose of selling your company, remember that the final value of your company is determined by how much a buyer is willing to pay and the value that you are willing to accept. It can be a tough pill to swallow, but the final price can always be negotiated.

What is an example of a small business valuation?

As mentioned above, the worth of your business depends on how much a buyer offers and the figure that you are willing to accept. To get an idea about how much your business is worth, here’s a step by step guide on the earnings approach:

1. Calculate your SDE. SDE stands for seller’s discretionary earnings, a metric used to determine a business’ historical cash flow. In simpler terms, SDE refers to a company’s profits before interest, taxes, depreciation, non-recurring expenses, non-operating income and expenses, and other adjustments – giving you a better understanding of your business’ true earnings. A buyer, or a third-party appraiser conducting the valuation, will use SDE as a benchmark to measure how much a business brings in on an annual basis.
2. Determine your industry multiplier. As the name implies, the industry multiplier helps businesses assess their worth by finding the multiple of earnings that similar businesses were sold. For instance, if a company has an SDE of $100,000 and was sold for $200,000, then your multiplier should be 2x your SDE. Industry multipliers are important so that companies can be valued appropriately based on their growth potential.

While this seems like an oversimplified valuation process, it’s a great jumping-off point for businesses that are curious about determining their company’s value. As with all things in business, the best valuation method depends on the type of business as well as the purpose of the valuation. Make sure to do your own research or meet with a consultant if you don’t have the time to do it yourself. After all, you’re dealing with a process that needs a lot of time and effort for accurate results.

Wrapping Up: Why would you need a business valuation?

The truth is that there are a variety of reasons why you might need a business valuation. Whether it be applying for additional funding or planning an exit strategy, a business valuation will help you keep track of your company’s performance over time. Taking an in-depth look into your business from time to time helps you identify opportunities for growth and tighten aspects of your business that need to be improved.

About Kickfurther: How can it help your business?

Kickfurther is a great alternative funding option for businesses that have exhausted other efforts to secure additional funding. It is an online inventory financing platform that enables companies to access funds that they usually cannot acquire through traditional sources. Kickfurther applies a unique approach by allowing supporters and fans to purchase a company’s inventory on consignment.

The great thing about Kickfurther is that companies go through an extensive vetting process before they can tap into the Kickfurther community. This creative funding model is an innovative way for businesses to get the funding that they need without tying up their cash flow on inventory.

Do you know what goes into managing a business? From the outside looking in, it’s easy to overlook how much work goes into keeping a business afloat. When starting a business, one of the most important things you should familiarize yourself with is cash flow management. If you don’t have a concrete understanding of how cash flow affects your business, chances are you’re setting yourself up for failure.

Luckily for you, we’re here to help! Let’s talk about business seasonality and how businesses can better manage their cash flow needs. 

Why do businesses have cash flow problems?

There are a plethora of reasons why businesses experience cash flow problems. As the name implies, cash flow refers to the net amount of cash and cash equivalents that are flowing in and out of your business. Whenever a business experiences positive cash flow, it essentially means that a business can comfortably fund operations as more cash was received than paid out. On the other hand, negative cash flow indicates that businesses are spending more money over a certain period than their cash inflow.

The truth is that cash flow does not have to be complicated – but business seasonality can lead to several missteps. Some of these missteps include:

•     Low profits due to late payments
•     Overstocking increases the risk of cash flow issues
•     Unexpected changes in demand
•     Not paying attention to expenses
•     Inability to keep up with seasonal demand

How does seasonality affect cash flow?

Put simply, seasonality affects a business’ cash flow due to an increase in consumer demand. For businesses to keep up with seasonality, they must be able to ramp up the production of goods and have the necessary cash to fund additional processes. As a result, seasonal businesses would have to increase their production power by spending more on raw materials, manpower, and machinery and equipment in order to meet the spike in demand.

Why is cash flow management important for a seasonal business?

Managing your cash flow is of utmost importance especially for businesses that experience seasonal demand. Seasonal businesses tend to put unnecessary pressure on themselves especially during peak shopping seasons. Cash flow management, if done correctly, ensures that businesses can pay their recurring expenses on time as well as have extra cash to fund expansion projects. It also helps businesses plan for peak shopping seasons, allows them to take advantage of bulk discounts, and, most importantly, gives them peace of mind.

How can cash flow forecasts be used to help a seasonal business?

Cash flow forecasting is the process of estimating a company’s future financial position through the use of historical data. It involves a thorough analysis of a company’s sales income, expected expenses, as well as other sources of cash. In essence, a cash flow forecast gives you an idea, or at least an accurate assumption of your future cash flow standing and allows you to adjust your spending accordingly.

Through effective forecasting, you can spot cash shortages before they can even become a problem for your business. It can also help you avoid overspending as it removes the guesswork on how much money you’ll have to spend per month – giving you greater control over your cash.

How do you manage cash flow effectively?

Effective cash flow management depends on how frequently you monitor your cash flow. However, it’s easier said than done. As a business owner, it could be difficult to closely manage your cash flow especially if you’re looking for ways on how to grow and expand your business. Fortunately for you, there are a plethora of accounting software available in the market that can simplify even the most complex cash flow processes.

But what if you don’t have extra cash to spend on accounting software?

Don’t worry, we’ve got you covered! Implementing a cash flow management strategy doesn’t mean you have to spend thousands of dollars on software. In the next section, we’ll talk about some of the most common strategies that you can use to better manage your seasonal business’ cash flow.

Here Are 7 Tips for Managing Cash Flow in a Seasonal Business

1. Always plan ahead. If you’ve reached this part of the article, you would already know that cash flow is an extremely vital component that keeps businesses afloat and enables them to plan for the future. This is why it’s important to always plan ahead. Establishing a cash flow plan means placing a comprehensive guide that would allow you to respond accordingly even when your business is confronted by a major disruption. Once you plan for your cash flow needs, you’ll be better positioned to deal with your seasonal business’ peak and off-peak seasons.
2. Know your peak season. Effectively running a seasonal business requires having a concrete understanding of your busy and slow seasons. Knowing your peak season empowers you to:

• • Determine whether or not you should hire seasonal staff
  • Make important inventory decisions
  • Negotiate leases to keep operating costs down
  • Pursue alternative streams of income during slow periods

3. Diversify your business. Diversifying your business is a surefire way to survive periods of low cash flow. Pursuing an alternative stream of income during the off-season is a great way to stay profitable throughout the entire year. However, before taking on an additional revenue stream, it’s important to keep in mind that your new offering should still align with your core operations and your overall business goals. For instance, seasonal businesses like food trucks can offer delivery-only or pickup-only options during colder weather.
4. Implement effective forecasting methods. Forecasting is an essential tool that enables businesses to easily adapt to the things that could happen in the future. While there are various types of forecasting methods out there, some of the most important are inventory demand forecasting, cash flow forecasting, and sales forecasting. These methods will keep you on top of your cash needs throughout the year and give you a better understanding of how cash flow works.
5. Design a budget plan that takes seasonality into account. Designing a budget plan that reflects your business’s seasonality will help you save during peak shopping seasons and meet necessary payments during slower seasons. It also pays to keep your spending to a minimum during slow periods even with a solid budget plan in place. As they say, it’s always best to err on the side of caution.
6. Cut costs when possible. Running a seasonal business is no easy feat. When it comes to cash flow management, businesses can look at a number of areas where they can cut costs to keep their operation going. For instance, seasonal businesses can prioritize low-cost marketing efforts during slow seasons and ramp them up in the months leading to peak shopping periods. Another option that businesses can consider is negotiating services and leases that they are paying year-round. Taking these steps can help you manage your cash more effectively and prepare for months with lower cash inflow.
7. Apply for a line of credit. If all else fails, businesses can apply for a line of credit. A form of business loan, lines of credit offer a convenient and flexible way to cover day-to-day business expenses like monthly bills, inventory, utilities, and other time-bound expenses. For seasonal businesses, lines of credit can serve as a short-term solution that business owners can avail of in case of a cash flow shortage. The great thing about a business line of credit is that you only pay interest on the amount borrowed and not the total amount available. It can also be accessed repeatedly as long as you make full and timely payments.

Final Thoughts

Poor cash flow can lead to unnecessary debt and even business failure. Having a strong grasp over your business’ cash flow means you’ll worry less about making ends meet. It also means you’ll be able to project your future cash flow standing more accurately, allowing you to plan for growth more effectively and efficiently.

If you need an alternative financing method to help you get through your slow seasons, check out Kickfurther. Kickfurther offers a unique twist to the crowdfunding phenomenon by allowing a brand’s supporters and fans to fund inventory purchases. It’s the first online marketplace that aims to finance a company’s inventory needs. Let’s take a look at how it works according to Kickfurther’s official website:

 

“When you purchase inventory for a brand, you play a part in online consignment. In online consignment, you own the products you helped fund until they are sold by the brand through their existing sales channels, yourself, or other Kickfurther users. As soon as the products you helped fund sell, you earn payments.”

This type of financing option allows small businesses to move away from traditional loans and enables a true consignment inventory from people that support and believe in your brand and your product. If you need more information, visit  www.kickfurther.com.

What is inventory management?

Inventory management is a systematic approach to monitoring the flow of your inventory and determining how much stock to hold at any given time. It is an essential part of supply chain management as it streamlines order fulfillment by keeping track of stock from the moment it arrives until it has been shipped to the end consumer. Without proper inventory management, it will be difficult for you to control other aspects of your business from order fulfillment to cash flow oversight.

Why is inventory management important?

The simple answer is that without proper inventory management, it will be difficult to efficiently manage your budget. For instance, holding too much inventory can affect your operational, holding, and transportation costs. On the other hand, holding too little inventory can impact your ability to maintain or improve customer satisfaction. This could then lead to loss of profit and even business failure.

Keep in mind that there is no one-size-fits-all strategy when it comes to inventory management. Effective inventory management should depend on your business model, sourcing method, and fulfillment system.

What is the role of inventory management?

The main role of inventory management is to effectively keep track of your products from procurement of raw materials to finished goods. It should also notify you when you are buying too much stock or when you are not buying enough. Having an inventory management system in place ensures that your business has the right amount of stock to be able to fulfill customer demand. As a result, you can save on storage costs, improve your cash flow, and guarantee that your business is operating profitably.

What are the different types of inventory?

There are three main types of inventory: raw materials, work-in-progress, and finished goods.

Raw materials

All the materials needed to develop your product fall under the raw material category. Generally, raw materials form part of your inventory until it has been turned into finished product.

Work-In-Progress (WIP)

As the name suggests, WIP refers to partially finished items that are still in production. The raw material needed to produce a certain product, the labor involved, and the overhead costs associated with making the product are all classified as WIP inventory.

Finished goods 

Finished goods are products that have gone through the entire production phase and are ready to be consumed by your customers. In simpler terms, finished goods are products that are ready to be sold.

Other inventory types include maintenance, repair and operations (MRO) goods, packing and packaging materials, excess inventory, and safety stock.

Best Inventory Management Strategies

Adopting the right inventory management strategy, especially for seasonal businesses, is a must. Not only does it enable you to react quickly to market changes but it can also prepare you for your busiest and slowest seasons. Here’s a closer look at some of the best inventory management strategies that you can use to support your seasonal business:

• Inventory Forecasting – According to Quickbooks, inventory forecasting is a process that determines a business’ inventory levels in future time periods based on sales projections. Inventory forecasting is a useful tool that optimizes stock levels to better manage cash flow. This method allows businesses to make informed decisions about the amount of inventory they need to satisfy future demand.

• Just-In-Time (JIT) Method – The JIT method is a type of inventory management strategy that focuses on improving the efficiency of a business’ inventory while also reducing waste associated with production. When using the JIT method, materials for production are ordered only after an order has been received – ensuring that wastage is always at a minimum. However, one big downside of the JIT method is that it can leave businesses vulnerable whenever they experience a spike in demand.

• ABC Analysis – ABC analysis is an inventory management technique that ranks items in a business’ inventory based on how valuable they are. A items represent a business’ most expensive products, B items represent products of lesser value, and C items are products that contribute least to a business’ overall profits. This type of categorization strategy helps businesses identify which products to prioritize based on their individual value.

• Economic Order Quantity – Economic Order Quantity, or EOQ, refers to an inventory management system that identifies the ideal order quantity that a business should maintain to minimize ordering and holding costs. Employing the EOQ method also improves cash flow management as it prevents businesses from tying up too much cash in inventory.

• First-In-First-Out (FIFO) – If your business deals with perishable goods, then the FIFO method might be the perfect inventory management strategy for you. FIFO stands for “First-In, First-Out.” This type of inventory management technique applies a control method in which the first items to arrive should be the first ones to leave. The FIFO method aims to move products before they can’t be sold, reducing wastage and preventing inventory from going to waste.

• Consignment Inventory – Consignment inventory is a business arrangement where a vendor or a wholesaler provides businesses with goods without the need to pay upfront. The consignor (vendor/wholesaler) maintains ownership of the products and the consignee (usually a retailer) is only required to pay for the goods until after they are sold. Consignment inventory is typically employed by retailers that want to test the feasibility of new products without putting their cash flow at risk. Consignment inventory can sometimes be confused with vendor managed inventory but they are two different concepts.

What is vendor managed inventory?

Also known as VMI, vendor managed inventory refers to a strategy in which a supplier of goods assumes responsibility for the management, supervision, and optimization of a client’s inventory. A typical VMI arrangement involves vendors handling every aspect of a business’s inventory to ensure that they have enough stock to meet consumer demand. VMI is a popular strategy that companies use to better manage their supply chain.

What is the best way to manage inventory?

Is there really a single best way to manage a company’s inventory? One important thing to keep in mind is that maintaining optimal inventory levels differs from one business to another. The good news is that there are several ways to help your business manage inventory effectively. Check out some of them below:

• Conduct regular audits – Maintaining inventory accuracy should be the priority when it comes to inventory management. Conducting regular audits helps businesses identify gaps in inventory and is an excellent way to avoid overstocking or stockouts. In addition, audits also help businesses cross-check financial records to make sure that they are holding the right quantity of goods at all times.

• Analyze inventory reports – While it seems overwhelming, analyzing inventory reports are an integral part of running a business. It’s no secret that many businesses struggle with finding the right amount of inventory to hold in their facilities. This is why it is essential to keep track of your inventory key performance indicators to manage your inventory as accurately as possible. From analyzing inventory turnover rates to identifying optimal reordering points, inventory reports will enable you to enhance customer satisfaction and ultimately increase your sales.

• Invest in inventory management technology – Innovations in technology have enabled businesses to take advantage of solid inventory management systems that can help them manage their inventory and keep track of their assets in real time. Inventory management systems also help you become more organized and automate important processes like reporting and identifying the ideal reorder point.

Pro tip: When choosing the best inventory management system, check whether the system integrates seamlessly with your existing software.

• Ensure that you have enough financing – Owning a product-based business means inventory is your lifeline. Without proper inventory management, it would be difficult to meet the demands of your customers. If you are unable to fulfill consumer demand, how will you make money? If you’re having cash flow issues due to ineffective inventory management, then it might be time to check out inventory financing.

What is inventory financing?

Inventory financing enables businesses to leverage purchased inventory as collateral. Usually, inventory financing is used by small to medium-sized businesses that have exhausted other efforts to secure financing. It’s a great financing alternative for businesses that are considering other avenues to obtain additional financing. One such alternative is Kickfurther.

How can Kickfurther help your business?

Kickfurther is an online inventory funding platform that applies a unique twist to the crowdfunding phenomenon by allowing the general public to fund companies that they want to support. Individuals looking to earn money can choose which company to fund and how much money they want to fund. The business will then offer a specific rate of return and a specific time frame to the buyers. The end goal is for businesses to outline their expected sales periods for customized payment terms. After the end of each sales period, businesses are then required to submit sales reports and provide the payment for every individual for each inventory sold.

Key Takeaway

Inventory management is a crucial process that affects almost every aspect of your business. It is important to keep in mind that inventory management is a necessary undertaking that ensures business success and profitability. When choosing an inventory management strategy, make sure to pick a method that works best for your business depending on your business model, your business goals, and your budget.

As a small business owner with a retail business, it’s common to finance products in order to grow sales and be successful. Ensuring you have enough product on hand and enough product incoming is critical for keeping cash flow healthy. If you are struggling to find capital to purchase inventory with, the solution may seem simple – get a business loan. However, for small businesses it may not be as simple. So how do small businesses finance a new or existing product? How to finance a product is explained below, just keep reading. 

Why can’t small businesses easily get inventory financing from banks?

When it comes to loans for small businesses, most banks prefer secured loans. Secured loans require collateral such as real estate, inventory, or other valuable business assets. Since the bank has collateral, their credit risk is reduced. As a result, they should be more willing to loan small businesses money for a reasonable interest rate.  While this sounds like it should be easy for small businesses to secure inventory loans from banks, it’s usually not. Compared to online lenders or investors, banks typically have strict lending requirements. In order for a small business to qualify for an inventory loan with a bank they should be able to prove consistent sales and solid financials. However, as a small business that needs more money to purchase inventory, current sales may not be lucrative enough for the bank to want to give an inventory loan. Another challenge small businesses may have is simply not having enough collateral to provide. While small businesses may be able to secure an inventory loan from a bank, it is usually difficult and the terms may not be favorable for the business. Most small business owners, such as the founder of Kickfurther, are constantly searching for a better way to finance inventory. We will dive into how Kickfurther can help small businesses a little later on. 

What factors do banks consider when giving loans?

Most banks consider the “Five C’s” when evaluating small businesses for loans. The Five C’s include capacity, collateral, capital, character, and conditions. In order to qualify for a loan, small business should not be insufficient in any category. If they are, it may be especially challenging to secure a loan from a bank. Let’s learn more about what the Five C’s of credit entail. . .

#1. Capacity to repay

Most banks place a strong focus on your ability to repay a loan. When you apply for a loan, you authorize the bank to run your credit. When banks analyze credit reports they are usually focused on two main things – the amount of debt you currently have and history of repayment. 

#2. Collateral

Collateral helps protect a bank’s interest. In the event a small business defaults on loan the bank can cover any potential loss by liquidating the collateral. In most cases, banks only lend up to a percentage of the appraised asset value. 

#3. Capital holdings

Small businesses that need to borrow money may be lacking in this category. It can be frustrating to lack capital and be denied access to capital for the shortcoming. Banks usually evaluate the amount of money a company has available. In some cases, the bank may evaluate the business capital and or the business owners capital. If the business owner has a strong financial stance the bank may proceed with the loan if the business owner will provide a personal guarantee.

#4. Character

Character can be harder to evaluate than some of the other areas. It’s one of the only areas that may be opinion based and largely subjective or represent soft qualification metrics that vary differently from institution to institution. Most banks research a company’s reputation, history, and references to evaluate character. If you have not been in business very long, you may have a lack of history which can be a problem.

#5. Conditions of the market

Market conditions are usually outside of a business owner’s control. If your business operates in a high-risk industry, it will be even harder to qualify for a loan. If you are able to be considered a strong candidate in all other areas, a bank may choose to approve the loan. High-risk industries are those that are at risk for sudden downturns. 

Why would a bank deny an inventory loan?

A bank can deny an inventory loan for just about any reason. While banks are in the business of loaning money, they must make good loans in order to be successful. When it comes to small business loans and inventory loans, banks usually deny more than they approve. It can be frustrating for business owners to envision growing their company but be held back by the inability to secure a loan. Here are 9 reasons why a bank may deny an inventory loan. . .

• Insufficient collateral
• Bad credit
• Not enough time in business
• Industry concerns
• Incomplete paperwork
• Debt-to-income ratio issue 
• Cash flow challenges
• Inability to provide personal guarantee
• Customer concentrations

How can Kickfurther help fund small business growth?

With 800+ deals funded and a 99.5% success rate, there’s no doubt that Kickfurther can help your business get the inventory financing it needs. Kickfurther also offers extremely low fees, no paid subscription, and can be up to 30% cheaper than other options. So how does Kickfurther work? Kickfurther is designed to help small businesses secure inventory financing without giving up equity in the company. Kickfurther allows small businesses to recruit supporters to buy inventory on consignment.  To get started, small businesses can create proposals including a time frame for producing goods, a specified rate of return, and a schedule for repayment. Depending on your expected cash flow, you can set the repayment schedule between 2-10 months. Kickfurther supporters are repaid in full plus dividends. 

In addition, Kickfurther offers a Pay As You Go financing system. This system allows companies to raise funds based on a percentage of their total income over the previous 12 months.With Kickfurther, you don’t have to start making your payments on funding until that inventory has begun selling, which eliminates the cash flow pinch caused by immediate repayment other finance lenders use. Brands that use Kickfurther can repeatedly increase their total funding amount while decreasing their costs.

Grow your business with Kickfurther

Kickfurther is committed to helping businesses secure affordable inventory financing. If your company needs inventory financing for physical products and has proven sales, you should apply at Kickfurther. Kickfurther has a vetting process that is designed to improve the success rate of candidates as well as supporters. During the application process sellers may be required to submit sales history and revenue documentation. In addition, Kickfurther can do a credit report as well as a personal credit check for the business owner. 

Wrapping Up

Being denied again and again can be frustrating. Don’t give up yet, though. You have just discovered a better way to finance inventory. In 2015, Kickfurther was launched by an entrepreneur who was once in your shoes. Sean De Clercq was hopelessly searching for an affordable way to finance inventory. When the search led to several dead ends, the idea for Kickfurther was born. Kickfurther was launched with the intention of helping other entrepreneurs and business owners find affordable inventory financing. 

Kickfurther is the world’s first online inventory financing platform that enables companies to access funds that they are unable to acquire through traditional sources. We connect brands to a community of eager buyers who help fund the inventory on consignment and give brands the flexibility to pay that back as they receive cash from their sales. This alleviates the cash-flow pinch that lenders can cause without customized repayment schedules, allowing your brand to scale quickly without impeding your ability to maintain inventory or financial flexibility. 

Discover affordable inventory financing. . . get started today!