Does Your Small Business Really Need a Loan?

In Cash Options for Small Businesses, one of the "five new rules for funding" is to skip the funding. Doing this involves two things to consider.

You may find the cash you need within the business. This solution has an advantage over loans and lines of credit because you won't owe interest or pay fees.

You may not need the loan. The other thing is that your business may not need the loan. I recently read a story in my local paper about a business owner who received approval for a $25,000 bank loan guaranteed by the Small Business Administration. She had planned to use the loan to lease space. She even found a location and selected contractors to remodel the space.

It turned out she opted not to take the loan or the lease. Her business went in a different direction and she invested $2,000 of her own money into the business. Going forward, she needed to ensure she had a business plan that reflected her plans for growth, hiring needs and when she would need more working capital, whether through a loan or other means for funding.

If your business has a clear direction, you may still be able to find cash inside your company or sell your existing invoices at a discounted rate through invoice financing. This differs from a loan in that no interest fees apply and you won't need to pay anything back. The fees may be deducted from the invoices rather than through upfront costs, depending on the lender known as the factor.

It's easy to assume your business needs a loan when it discovers a need for working capital or cash flow balancing. Take a step back, review your business plan and look within your company for possible cash.

What are some reasons not to pursue a loan? How can a business get working capital without a loan?