Startups can often have cash flow issues and for the many startups that fail, this is usually one of the main reasons.
From having overheads that are too high in the form of licensing, legals, staff and running costs, to not seeing enough revenue come in fast enough, there are a number of reasons why a startup may need money quickly.
You may be waiting for your next funding round to kick in, but this could be months away, so today we look at some of the ways your startup can get money quickly.
Speak To Your Family and Friends
In times of need, reaching out to family and friends can be a fast and cost-effective way to borrow. By getting financial help from your loved ones, you often skip the red tape and delays that come with more mainstream or traditional financing and can usually borrow at 0%.
However, it is important to manage expectations, whether it is giving family and friends a direct repayment after a certain period of time or giving away shares. These are the people dear to you and have clearly put faith into you and you do not want to avoid repaying or it can lead to conflict.
O% Credit Cards
If you need to borrow money to cover the expense, there are several options available. One option is to take out a 0% purchases credit card. These cards allow you to spend up to your credit limit without paying any interest for a fixed period, typically ranging from six to 25 months.
After the interest-free period expires, however, the interest rate will increase to the standard rate, which can be as high as 26%. To make the most of a 0% purchases card, make sure to pay off the debt before the interest-free period expires and avoid using the card for anything other than the emergency expense.
Another option is to take out a personal loan from a bank and convert this into a business loan. While rates are rising, a loan for £2,000 may be available at around 12% interest for a two-year term, depending on your credit score.
The interest rate you receive will depend on your credit rating, so take time to shop around and compare rates before committing to a loan. This typically comes in the form of instalment loans, so you can repay your loan after several months, in equal payments, to help you spread repayment.
If you belong to a credit union, this may be a good option for borrowing money. Credit unions are nonprofit organisations that pay savers to save with them and charge reasonable rates of interest to people who borrow. Many credit unions allow you to borrow before you start saving, and the interest rates charged are often much lower than those offered by banks or credit cards.
The maximum rate of interest that credit unions can charge is 3% per month, which works out to an APR of 42%. However, many credit unions charge less than this, with some charging as little as 1% per month (12.7% APR).
Beware High Cost Lenders
While it may be tempting to turn to payday lenders or other high-interest loans, you should be aware of the potential dangers and decide for yourself whether this is something you can actually afford in the long run.
Payday or short-term lenders often charge very high interest rates (see the FCA for more information). This can make it difficult to repay the debt and can leave you in an even worse financial situation if you do not pay this back.
Ultimately, the key to finding the money for an unexpected disaster is to plan ahead as much as possible. Building an emergency fund can help you avoid having to borrow money in the first place, and setting up a repayment plan for any loans or credit cards you do use can help you avoid falling into debt. By weighing your options carefully and making informed decisions, you can find the best way to cover unexpected expenses without jeopardising your financial future.