In a cash crunch? How to get money fast

As a business owner, circumstances will arise in which you will need some cash - fast. It might be to pay taxes, meet payroll, buy some equipment, make a down payment, etc.

If you don't have that cash readily available, what do you do? You can borrow from friends or family (if they have it to lend), but what if you don't have those resources? Where can you get that money?

Below are some finance options that you might be able to take advantage of if such a circumstance arises.

Receivable financing (aka factoring)

How it works is that you sell your invoices to the factoring company (you can usually pick and choose which ones) and they will advance around 80-85% of the face amount to you within 48 hours. They hold back the 15-20% in their reserves and once your customer pays the invoice, they calculate their fee and deduct it from the 15-20%. At that time or shortly thereafter, the difference is rebated back to you. The process for getting set up is five to seven business days; then whenever you have an invoice to submit, you will be advanced those monies within the 48 hours.

Merchant cash advances

When a company gets a merchant cash advance, it is getting advanced the sales of future credit card income. The lender can advance as high as 125% of the average monthly credit card sales. There are no regular fixed payments; the lender collects a set percentage of the company's daily credit card sales. The collection continues until the lender recovers what it advanced to the company along with its premium. Usually the lender tries to collect the advance within a year. You can usually obtain these funds within five to seven business days.

Bank balance and deposit lending

This is similar to the merchant cash advance except that the lender is advancing against your average monthly bank balances or bank deposits. You will need to provide your last six months of bank statements and the lender can advance up to 150% of the average monthly balances. A set percentage is deducted daily out of your bank account until it is paid off. You can be funded as quickly as five days.

Micro loans

There are several finance organizations that will offer unsecured loans for personal or business use. These loans tend to rely heavily on FICO scores being at 650 or higher. Loan amounts can be as low as $1,000 on up to $35,000 with repayment terms of one, three and five years depending on the amount approved. These loans might take up to two to three weeks before you receive funding.

There are some nonprofit organizations that offer small business loans up to $50,000 depending on how long you have been established, if you are profitable and if you meet their other loan requirements. Some of those programs can approve you with a FICO score as low as 575. Loan terms can extend up to 60 months and take several weeks to fund.

If you have a FICO score of 700 or higher and a steady source of income, there are some financing programs for business purposes that offer up to $150,000 if you qualify. These loans are unsecured and the rates are competitive. The applicant will pay a fee based on the amount approved. You can be funded in seven to 10 business days.

60-day IRA rollover rule

If you have a traditional IRA, you can withdraw money out of it. You should work with a CPA on this to make sure you meet the requirements. The 60-day rollover rule is that you need to pay it back in 60 days to avoid the 10% penalty and taxes. You are able to withdraw up to 100% of the amount (limited to once a year) and you can get funded in four to 10 days depending on the institution.

401K Loan

If your company offers a 401K plan, you may have the ability to borrow against it up to 50% of the amount. The plan needs to have a loan provision and state it can be a general purpose loan. It is usually amortized over five years. You are charged a low interest rate but you are paying yourself back since the money is paid back with after-tax dollars. You cannot borrow against your 401k plan if you already have a loan outstanding against it. Once that is paid off, then you can borrow against it again. If you stop paying on the loan then the remaining balance may be subject to the 10% penalty and taxes. This usually can be funded in 10-14 days.

Securities-based lending

If you qualify, securities-based lending may enable you to unlock the value of your portfolio to help meet your goals while keeping your overall wealth management strategy on track. Securities-based lending can give you access to a flexible line of credit, allowing you to finance almost any personal or business need. Eligible securities — including concentrated or restricted positions — in your investment portfolio are held as collateral for the loan. Interest rates may be lower than rates for traditional loans, repayments can be set up based on your cash flow requirements and there is no need to reapply for each new loan; multiple loans may link to one variable line of credit. Usually there is a minimum facility of $100,000 and you usually can get set up within five to seven business days.

Borrow against a certificate of deposit (CD)

If you happen to have money invested in a CD, this would be the best option and probably the quickest and least expensive way to go. You can borrow up to 100% of the CD amount. Your interest rate is 2-3% above the CD rate and you pay it back depending on the CD term. You can receive the funds within 24-48 hours.

If any of these financing options can be of benefit to you, I recommend getting with the financial expert or organization that specializes in those programs (bank, financial adviser, factoring company, merchant representative, financing consultant or broker, etc.) so that they can explain in more detail how that particular loan program works, if you qualify and how you can get set up.

Cheryl O'Neill Gowen is president and CEO of Alternative Funding Options. She works with business owners seeking cash flow from non-traditional sources, drawing on more than 30 years' experience in banking, financing and staffing. Contact her at: [email protected].