Facing a lack of available capital can pose a significant challenge for businesses, hindering their ability to navigate difficult economic times or fuel growth. During turbulent financial periods, insufficient cash reserves can swiftly lead to the demise of a small business, since many of them are operating on a cash buffer of just 27 days. The nationwide shutdown in 2020 highlighted the urgent need for small businesses to establish emergency funds, allowing them to sustain operations or stay afloat during complete or partial closures.
The business landscape is unpredictable, and as the saying goes, even the best-laid plans can go awry. It’s important to have a safety net that prepares you for unforeseen circumstances, ensuring your business can weather the storm without depleting its cash reserves. We have compiled a list of six easy ways for small business owners to secure an emergency fund, helping them be prepared for any bumps in the road.
Options for Arranging Emergency Funds for Small Business Owners:
- Banks and Non-Banking Financial Companies (NBFCs):
Banks have traditionally served as the primary source of fundraising for small businesses and continue to play a pivotal role. Even before India’s venture investing ecosystem developed, banks were the sole institutional finance source available to small businesses. Since venture capital isn’t suitable for every business, entrepreneurs rely on banks and NBFCs for financing. Businesses can secure loans from banks or NBFCs, which are repaid with interest. This form of debt financing is popular because it allows entrepreneurs to maintain complete control of their companies.
To secure a loan from a bank or NBFC, businesses must submit a business plan, upon which a lending decision is made. Additionally, many online lenders can provide you with loans up to 1 lakh easily to manage the short-term expenses in your business.
- Seek Help from Family and Friends
If you have reliable and financially sound individuals in your network, they can be a trusted source for emergency financing. However, it’s essential to formalize the terms and conditions of the loan on paper to ensure clarity regarding repayment within a specified timeframe.
- Access Instant Cash via a Gold Loan
During emergencies, a gold loan can provide flexibility. You can either sell your gold or obtain a loan against it at a reasonable interest rate and minimal processing fees. Furthermore, there are no foreclosure charges, and repayment terms are flexible, typically ranging from 6 to 24 months.
- Utilize a Business Credit Card
A business credit card not only allows you to earn points but also provides payment protection and can help manage cash flow issues. It’s crucial to use the card responsibly and avoid overspending, but it can be highly useful for maintaining a steady cash flow during challenging times.
- Secure a Line of Credit
While having a cash reserve is ideal, a line of credit can be valuable during emergencies. A line of credit combines the features of a credit card and a bank loan. It represents a predetermined amount of money that can be borrowed as needed. Interest is only charged on the amount utilized, similar to a credit card, and you can borrow in increments. Repayment follows the structure of a traditional bank loan. This option provides a flexible and accessible source of emergency funds.
Final Thoughts on Emergency Funds
Securing emergency funds is essential for small business owners to protect their livelihoods and ensure their businesses can weather unexpected challenges. By exploring various funding options, such as loans, grants, and crowdfunding, entrepreneurs can find the financial support they need during times of crisis. It is important to carefully evaluate each option and consider the long-term impact on the business before making a decision.
When getting any kind of loan, be it personal, Flexi personal, or any other type of loan, it is important for small business owners to keep a check on the list of documents required for getting a loan which can make the process much easier at the time of urgent requirement. Additionally, maintaining strong relationships with lenders and investors can provide ongoing access to emergency funds when needed. Remember, preparing for emergencies is not just a one-time task; it requires ongoing diligence and planning. So, take action now and start securing your emergency funds to safeguard your small business’s future success.
Shikha Ahuja is part of the content marketing team at KreditBee – India’s fastest personal loan platform where professionals can easily avail of personal loans in just a few minutes when in need of quick funds. Shikha writes to create awareness amongst her readers on topics related to loans, personal finance, and budgeting. Being a part of the FinTech industry keeps her on her toes, but she keeps herself grounded through yoga and meditation and loves to host game nights during the weekends.