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Consultant Proficiency Resources Business Sabotage: Underfunding




This week, Consultant Proficiency Resources (CPR) continues its search for areas of the business that may result in business sabotage. Today, CPR explores underfunding of small businesses. According to Viva Capital Funding, over 80% of small businesses are underfunded, resulting in sabotage. The business would likely fail within the first three years of operations without a steady stream of capital. Starting a business requires a steady cash flow that frequently requires financial funding.


A Federal Reserve report confirmed that about 90% of small businesses could not compete for funding, including target loans and lines of credit, due to the rigid requirements within the banking industry. Banks consider the following criteria:

  1. credit scores,

  2. time in business,

  3. collateral, and

  4. existing loans

ViVA Factor (2022) provides alternate and non-traditional methods of funding your business. The article also provided the pros and cons of each. Let's explore!

1. Angel Investors

Angel investors can be a good option for some small businesses because Angels Investors typically invest based on their personal opinion rather than what an algorithm suggests.

Pros of Angel Investment

  • Works for startups and those with bad credit.

  • Terms are negotiable, and the paperwork is minimal.

  • Works for all industries and businesses.

  • You don’t need to make monthly payments.

  • You can sometimes partner with someone with knowledge or additional resources to help your business grow.

Cons of Angel Investment

  • You usually need to know someone with cash to get funding. Unfortunately, it’s hard to find an angel investor.

  • Terms can be ambiguous.

  • Funding is often slow.

  • Investors can usually turn their debt into equity.

  • Funding amounts are usually lower than you might get through other options.

  • Your investor may need help understanding your business and may have unrealistic expectations.

  • It does not help you build credit.

2. Venture Capital

Also referred to as VC, venture capital works similarly to angel investing, but the money comes from a pool of investors rather than a single investor.

Pros of Venture Capital

  • You can sometimes partner with some with has knowledge or additional resources to help your business grow.

  • Monthly payments are not required.

  • Your business may receive more publicity since investors will likely network and share info.

  • Loans can reach $500,000, which makes VC more versatile than angel funding.

Cons of Venture Capital

  • Your ownership stake is reduced.

  • Financing can be expensive.

  • Although it’s easier to secure VC than angel investments, it’s still more complex than traditional options.

  • You’ll need a board of directors and formal reporting.

  • Your business must be expected to proliferate.

  • Funds will be released on performance.

  • If you underperform, you can lose your business.

  • It does not help you build credit.

3. Small Business Loans or Working Capital Loans

When most people think of a working capital loan or short-term loan, they consider a traditional small business loan. Unlike the options above, a small business loan doesn’t require giving up control of a company, and it’s easier to get one.

Pros of Small Business Loans

  • You don’t have to give up equity in your company.

  • APRs start at around nine percent.

  • Your payments help build credit.

Cons of Small Business Loans

  • The minimum credit score is 600, but higher scores are required to get the best terms.

  • Borrowers usually need to be in business for at least six months.

  • Annual revenue of at least $100,000 is typically required.

  • You may be required to pledge personal assets to qualify, and your debt-to-income ratio will be scrutinized.

  • APRs can be as high as 100 percent.

  • Monthly payments are expected.

4. SBA Loans

There are many types of SBA loans that can provide working capital for small businesses. Some of the most popular include 7(a) Loans, CDC/ 504 Loans, microloans, and disaster loans. These are unique because the Small Business Administration (SBA) doesn’t directly lend but guarantees loans to select providers.

Pros of SBA Loans

  • You might qualify even if you can’t get a traditional bank loan.

  • Interest rates are capped.

  • A wide range of loan amounts is available.

  • Your payments help build credit.

Cons of SBA Loans

  • You’ll usually need a down payment.

  • Although the SBA doesn’t set limits, a 690 or higher credit score is usually required.

  • You must meet stringent requirements for business size, industry, and character.

  • You’ll have to prove you can’t qualify for a loan without the SBA’s help.

5. Credit Cards

Credit cards can be used as an alternative to a working capital loan. Instead of receiving a lump sum, your good credit and collateral can help you earn a credit line. You can charge up to your maximum allowed amount. Then, as you pay down your balance, the funds become available to draw from again.

Pros of Credit Cards

  • For the most part, you can spend the money however it makes sense.

  • You only pay for the money you borrow.

  • You can build credit.

  • Cards with lower limits won’t necessarily require collateral if your business is well-qualified.

  • Depending on your agreement, you can sometimes earn benefits or rewards for using your card.

Cons of Credit Cards

  • There may be limits on what you can pay for with your card.

  • You’ll usually need a credit score of 700 or higher to get a sound business credit card with decent terms.

  • It’s easy to get hit with surprise fees.

  • It’s easy to get caught in a debt trap.

  • Borrowing limits are low.

  • Interest rates can be higher than those for traditional loans and usually start at around 19 percent.

6. Revolving Line of Credit

A Revolving line of credit (LOC) works like a credit card, though you draw funds from an account. The primary differences are that you won’t get rewards for using your LOC, but you will probably get a lower APR and higher credit limit.

Pros of Revolving Lines of Credit

  • You only pay for the cash you use.

  • Your payments help build credit.

  • It’s easy to get hit with surprise fees.

  • You may be able to get a LOC with a credit score of just 500 if you have collateral.

Cons of Revolving Lines of Credit

  • It’s easy to get hit with surprise fees.

  • It’s easy to get caught in a debt trap.

  • Borrowing limits are low.

  • The best terms are reserved for those with credit scores of 680 or higher and collateral.

  • APRs can be higher than those for traditional loans and may be anywhere from eight to 80 percent.

7. Asset-Based Lending

Businesses that don’t qualify for traditional small business working capital loans due to bad credit, a lack of time in business, or other rigid criteria banks have can often qualify for asset-based lending. It’s sometimes referred to as a secured loan because the loan or line of credit is backed by one or more of your assets. So, for example, you may secure a loan with real estate or equipment.

Pros of Asset-Based Lending

  • You can qualify even if your credit isn’t great or you don’t meet other requirements for a traditional bank loan.

  • Loan lengths can be flexible.

  • You can spend the money on whatever makes your business the most sense.

Cons of Asset-Based Lending

  • Assets used to secure the loan are at risk if you default.

  • The amount you can borrow is limited to the value of the asset(s) involved.

  • If suppose you’re using specialty or industry-specific assets to qualify. In that case, an ender without industry expertise may not know how to value the asset correctly, resulting in lower loan amounts or terms that aren’t as strong.

  • Interest rates are typically higher than they are for a traditional business loan.

8. Invoice Factoring

Instead of opting for a loan or line of credit, many businesses leverage invoice factoring to meet their working capital needs. With this method, you submit your unpaid B2B invoice to a third-party factoring company, which then advances you most of the value of the invoice. Then, when your client pays their invoice, you receive any remaining funds minus a nominal factoring fee.

Pros of Invoice Factoring

  • Approval is based on the creditworthiness of your clients rather than your credit score, so most businesses qualify.

  • Funding is fast—payments can be made the day you submit your invoice to the factoring company.

  • You choose which invoices to factor in and win hen to factor in, so you have more control over the amount you receive.

Cons of Invoice Factoring

  • Factoring is generally more expensive than a traditional loan or LOC, but because you choose when and how much to factor in, you can limit your expenses and only leverage it when it makes business sense.

  • The factoring company collects payments from your clients. Some businesses don’t like this, while others appreciate being freed from the task and being able to provide more flexible payment terms.

9. GRANTS

Many grants are available annually for small businesses via federal, state, and local governments and private and community-based organizations. Grants are not necessarily free money; there is a process to secure grants. Grant applications take time and effort. If you need more time and understanding, it will be worth investing in a grant writer like CPR LLC. Here are a few areas for your consideration when you are planning on applying for a grant:

  1. Almost all grants are for existing businesses; winning a grant is impossible if you haven’t started your company. Look for a loan instead.

  2. Grants are given to “interesting” business innovative business tribute to a social cause.

  3. Grants aren’t immediate – most grants only accept applications once a year, and the winner isn’t announced until later. Grants are not classified as short-to-funding solutions.

For a small business, ensure you have the following before seeking a grant:

  1. business incorporation

  2. FEIN-Federal Employe ID#

  3. State Registered form

  4. Articles of Operation

  5. at least one year of experience

  6. some grants prefer business tax filing

  7. business plan and,

  8. marketing plan