Alternative ways to access business funds during COVID-19 recovery—and beyond

In the first part of the series on how businesses can access funds during the COVID-19 pandemic and beyond, we discussed some traditional ways of attaining capital such as Small Business Administration (SBA) loans and the importance of building business credit.

This article will focus on more nontraditional ways of accessing funds. These out-of-the-box solutions are often quicker, easier and more advantageous for smaller businesses, particularly in the natural products space.  

Bring on a strategic investor

Strategic investors are much different from silent investors, who typically provide an infusion of cash and then hope for the best. The former, however, have a stake in your success because they are typically people you already do business with. They don’t seek to own or run your company, but to be part of it.

To find potential strategic investors, look first to your supply chain: Who do you buy from and sell to? You can also search investor groups and trade associations to find supporters.

“The benefit for strategic investors is that if they invest in you, they keep you as a customer,” said Marty M. Fahncke, founder of Adventurist Inspired Marketing. “They know that you will not buy from someone else, or they get preferred access to your products. If a strategic investor comes in with an equity investment, it gives you an infusion of much-needed cash and gives them motivation to help you be successful and grow.”

Related:12-month business planning in 5 steps

Investment is recouped via dividends (a percentage of profits), and if the business is ever sold, the strategic investor gets a percentage of the selling price because they are a part owner.

“This is a minor investment—typically 10–20%—and you can have more than one,” said Fahncke. “You could have three strategic investments with three different parties—now you have three people who are being strategic and drumming up business.”

Think permanent changes rather than one-off solutions

Supply chain partners can also be helpful in terms of keeping day-to-day operations afloat and ensuring quality control for brands.

“Many natural products companies source materials from communities that are far away, in developing countries or places where the end-consumer is not buying the product,” said Joanne Sonenshine, a development economist and founder of partnership advisory firm Connective Impact. “COVID-19 has made the challenge of sourcing even more complex.”

Oftentimes, workers in developing societies lack access to basic needs such as food, water for handwashing, soap and medicine. This means that companies buying inputs from these suppliers face challenges in terms of ensuring quality and consistency. “Natural products companies are turning to producers on the ground and seeking guidance from those who are directly tied to the supply chain,” said Sonenshine.

Related:Where to access business funds during COVID-19 recovery—and beyond

In one instance, a large company that sources ingredients from smaller natural foods companies purchased excess beeswax from a natural honey supplier. It then provided beeswax soap to ingredient makers abroad to keep its operations going.

“These are improvements that can help right now,” said Sonenshine. “Hopefully these types of arrangements will continue to support themselves as time goes on.” Sonenshine also says larger companies are keen to partner with smaller brands, who are often more in touch with consumers and open to new, more sustainable ways of doing business.

“Whether it’s health, economic, environmental or social, unique collaborations can happen. Smaller companies can look to how bigger companies weather economic storms, and in return, bigger companies learn about innovation.”

Finance your business equipment 

Natural products producers who are considering opening their own manufacturing facilities (or who already are but need upgrades) may want to consider leasing or financing equipment rather than purchasing it outright.

When cash flow is tight, equipment purchases are often the first casualty, which can slow progress and innovation. Financing equipment makes cash flow more predictable, which enables a business to grow and become more profitable. It also allows business owners to reserve borrowing power for when it’s truly needed.

“During this crisis, we're seeing companies that never financed equipment before start to do so, so they can keep their own cash in the bank,” said Chris Fletcher, senior vice president of national accounts for Crest Capital. And it isn’t just manufacturing equipment—businesses can finance anything from vehicles to software.

Credit issues? Merchant Cash Advances may help

This tip should be reserved for emergencies, but if things are tough and you really need the capital, a Merchant Cash Advance (MCA) is an option.

MCAs are a purchase of future receivables. They are typically funded by private lenders and funders with very specific guidelines and are often reserved for business owners who need capital quickly or don't have the business credit that banks require. Lenders look at a business’s past six months of bank statements, decide how much they will loan and determine a fixed payment that varies daily or weekly. The funder then takes a percentage of ACH payments, which are automatically deducted from the business checking account—for example, 10% each day.

“"It's the fastest—but the most expensive—funding option,” said Victor Rodriguez, co-founder of New York-based L3 Funding. “It funds very quickly with the least paperwork and underwriting. Funds can be available within 24 hours, so it really makes sense for a business in a pinch."