Ask 100 people why they are writing a business plan and most likely 99 of them will say it is because they need to raise capital. Almost every company, big and small, will need to raise capital at some point in their life cycle. Whether they turn to their local banker, scour the planet for just the right venture capital firm, or turn to their neighbor who happens to be an accredited angel investor, most entrepreneurs will need to turn outward to secure proper funding.
In my white paper, “65 Ways to Finance a Business”, I go into great depth about sixty five of the best funding options for entrepreneurial based companies. Obviously not every funding idea is going to be relevant or feasible for your business. However, most likely a dozen or so will fit your specific capital needs.
One idea that most entrepreneurs ignore is vendor financing. Before you snicker and mumble underneath your breath about how silly this idea is hear me out. I am not suggesting that a vendor(s) is going to write you a fat check. What I am suggesting is that your vendors may consider extending you credit for a lengthy period of time, enabling you to get your business up and running and then repay your debt through cash flow. Let me tell you a story.
In the early days at JIAN, we put our manufacturing out for bid with the up-front requirement that we got 90-day payment terms. We didn’t have the luxury of a line of credit at the time, so our vendors were going to have to carry us. We figured they were motivated enough to get the business and that we could convince them to extend an outrageous credit line to us. It worked, and it turned out to be worthwhile to our vendors.
In a sense, our vendors were our partners in our venture. Two things are important about this arrangement. First, we were up front by saying that we couldn’t pay for 90 days. Some people wouldn’t be honest about their ability to pay, yet they would drag their payments out 90 days anyway. That’s not fair to the vendor. The other important thing we let them know that we were going to be a good customer for them for a long time, not constantly shopping around to chisel their prices. Our manufacturing vendor was so thrilled at the prospect of having us as a long-term customer they were willing to take a chance on us.
We came through, paying off our debt within the 90 day period. This was just the boost we needed to get the company moving on an upward trajectory and we have never looked back since. Our manufacturer was able to reap the benefits of our success for years after afterward.
Do you have a vendor who is willing to put their trust in you? If not, I would suggest revisiting your vendors. Your goal is to work with companies that will go out their way (within reason) to help you succeed. Good luck!