7 Innovative Ways to Finance Your Small Business in 2023

Every business has a different financial situation that requires a suitable loan product according to its specific needs.

It is also worth noting that once you have your finance sorted then it might be good to hire CFO Services to have someone help you manage your business finances.

Today more companies are looking for new business financing options aside from traditional bank and credit union loans – which are increasingly difficult to get loan approvals. 

If you are launching a start-up or looking to expand your business, then you will want to know about the many new ways to finance your small business.

You should also be made aware of anti-money laundering and counter-terrorism financing when it comes to your business.

You might not have realized it, but this could greatly affect your business.

1. Rollover for Business Startups – ROBS

Your 401(K) is not just an effective savings plan to secure you upon retirement, it is also a good source of financing for your startup business.

Yes, that’s right. If you have substantial amounts ($50,000 +) in your 401(K), then you can invest the money as the starting capital for your new venture.

To so, you must first create a C Corporation. This is a type of corporation wherein the owners are taxed separately from the business.

After establishing a new C Corporation, you need to make a new 401(K) plan with the corporation and then roll over your existing 401(K) plan to the new one, including all retirement assets.

You can decide to either invest a large chunk of your 401(K) money at once or make small investments as needed.

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Once the money is invested in the corporation, the new 401(K) plan will be considered as a shareholder and you are free to use the money for any business expenses.

Note this is not a loan and you do not have to repay the monies, which makes it an especially attractive option for new entrepreneurs.

However, a restriction of 401(K) prevents early access to your company’s contribution to your 401(K) plan.

You must first meet the required amount of years working for the company before you can tap into the money. So, make sure to check this with your company before creating a C Corporation.

On the other hand, you are free to roll over all your personal 401(K) deposits. Setting up a ROBS account for a business startup is a complex process that needs to be done properly to avoid IRS audits and penalty fees.

Utilize a professional firm that specializes in these types of financial transactions and has a proven track record.

If you have an established business and you are looking for funding sources for business expansion, improving cash flow, or financing business expenses like employees’ salaries, then you can consider the following financing options.

2. Invoice Factoring

With this option, you can get access to funds by selling your unpaid invoices to a lender, who will pay you around 60-95% of the total unpaid invoice value.

The lender, the factor,  will then contact your customers about the payments due. Once the lender collects the unpaid invoices completely from the customers, it will remit the money to your business, with deductions for interest and service fees.

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Although some business owners find it more convenient to let a third party do collections for them, some are rather uncomfortable with this.

3. Account Receivable Financing or Invoice Discounting

This works the same way as invoice factoring wherein you get funds from a lender against your business’s unpaid invoices from customers. The unpaid invoices are considered your account receivables.

However, your business will do the collections of payment from your customers, instead of the lender.

You will receive up to 95% of the total invoice amount from the lender, which you will pay back plus interest and service fee.

4. Online Lenders

Online lenders like Kabbage, offer lines of credit of up to $250,000 to small businesses. You can get funds by drawing the amount you need from the line of credit.

Payment terms are either six or 12 months and include monthly fees that cost up to 10% of the loan amount per month.

Application for lines of credit usually involves linking an online payment system that your company use like Quickbooks or Paypal, or your company’s checking account.

The application process is quick and easy, and once approved, you can draw money from line of credit right away or use a credit card.

5. Working Capital Loan

A working capital loan is applicable to small businesses that experience a seasonal or cyclical boost in sales.

It aims to help businesses during their low-sales period and cover certain expenses like wages, accounts payable, utilities, and others.

However, a working capital loan cannot be applied for expenditures like big investments or purchases of assets.

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6. Merchant Account Advances

Another financing option for your small business, especially if it relies on debit and credit card sales, is Merchant Account Advances (MCA). Lenders who offer MCA will give an upfront sum of money.

Your business will promise to give back a percentage of future sales to the lender as payment. There is a variation of MCA that is marketed towards small businesses that don’t get their revenue from debit and credit card sales.

With it, the borrower will repay the upfront cash to the lender by making daily or weekly payments from the business bank account.

It’s called Automated Clearing House withdrawals. The daily or weekly debits will proceed, with fees,  until the loan amount is fully paid.

7. Choosing the Right Financing Option

All of these new ways to finance your small business sound great, but it’s important to know how these financing options work.

Not all of them might fit your company’s current financing needs. You, therefore need to evaluate carefully the pros and cons of each one.

Because if you choose the wrong financing, you might find your business breaking even only after a very long time.

That’s all on the 7 Innovative Ways to Finance Your Small Business.

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