Debt-financing keeps the small business world going round. According to Fundera.com, 56% of small businesses seek financing to acquire assets, expand, or pursue new market opportunities. Nobody will argue that debt is a powerful financing avenue when it comes to starting and growing businesses.
However, too much debt can sink your company. If your business is debt-ridden, you’ll miss growth opportunities and damage its reputation and goodwill among suppliers and customers. Again small business owners, especially women, face rejection from traditional lenders due to gender bias, lack of collateral, trading history, and substantial business revenues.
Is there a way to grow your business without any kind of debt?
Luckily, there’s a couple of ways to fund a small business enterprise with little debt. For instance, aspiring women entrepreneurs can take advantage of small business grants for women to start and scale their businesses debt-free.
This article walks you through ways to grow your business without sinking into debt.
5 Ways to grow your business without debt.
Business grants for women
Like never before, women have become game-changers in the business world. According to a recent American Express report on the state of women-owned businesses in the US, there are nearly 13 million women-owned businesses in the US. That’s almost 40% of companies employing over 9 million people and generating $1.7 trillion annually.
But women face more hurdles in obtaining funding from lenders. Many government programs and non-profit foundations have come forward to offer grants for businesswomen in the US. The Girlboss Foundation Grant, The Walmart Foundation, Amber Grant, Innovate Her Challenge, and Tory Burch Foundations are just a few.
So if you are an aspiring woman entrepreneur, securing business grants for women is an excellent way to start and grow your business without any kind of debt.
Build a sizable cash reserve
Building personal savings is another way to start a business without going into debt upfront. If you’re still employed but aspire to start your own business, start saving money for your small business startup.
Aim to build a sizable chunk of savings that can cover initial startup costs and cushion your business a few months down the line before it starts to generate enough cash flow to fund itself.
Exercise rigorous cash flow management practices
To grow your business without debt, you need an in-depth understanding of your sales cycles and the ability to trend the thin line between accounts payable and accounts receivable. Negotiate with your vendors to secure a longer payment term on the account payable front, but be vigilant to your customers or clients to ensure shorter payment terms on accounts receivable.
For instance, you may require your clients or customers to clear outstanding debts within 30 days and pay your vendors in 45 days. You’ll maintain enough cash flow to cover business operations while maximizing the profits earned.
Reinvest part of the profit
Savvy entrepreneurs reinvest part of the profit back into the business to try and grow their business without debt. Conventional wisdom advocates that 30% of the profit should be plowed back into funding business operations or acquiring business assets.
It may be difficult to hit that number when you are just getting started. But once your business starts to generate good earnings, reinvesting part of the profits is a good way to grow your business without too much debt.
Borrow only what you can afford
Per se, debt isn’t a bad thing. While the above are excellent ways to grow your business without debt, you may end up sacrificing growth opportunities. Lack of financing is the reason 21% of small businesses become cash strapped and go belly up. Think of turning away customers trying to squeeze some money from the remaining inventory to purchase new stock! That’s detrimental to your reputation and a boost to your competitors.
Just make sure you borrow what you can afford and clear any outstanding business debt as soon as possible to get back to growing your business debt-free.
Grow your business debt-free from here on out
Small business grants for women and other methods discussed above can help women entrepreneurs start and grow their businesses without the burden of too much debt.
That said, borrowing what you can afford and repaying it as soon as possible can help you pursue market opportunities and grow your business faster. If you can’t secure business grants for women, micro-loans and SBA loans are great options to look into. However, your sure bet is to get a small business loan at favorable terms from an online lender.