Are you scrambling to find cash to keep your business afloat? The stress of managing an inadequate cash flow, combined with worries about the future, can leave you feeling defeated. You may think that no lender or investor would want to join your struggling operation, but that’s not necessarily true. A second round of funding is common when your seed funding runs out and the revenues aren’t enough to sustain operations yet. Here’s some very practical advice on finding funding for your operation, even if it’s running in the red.

Analyze Your Situation

analyze your situation

Image via Flickr by 401(k)2013

Be certain, first, that your business is worth saving. Make sure you aren’t deluding yourself. Entrepreneurs are, by nature, optimistic. It’s typical for a business owner to look at lousy projections and then tweak the revenue and expense figures to force a better outcome, with the idea that “we’ll just have to make this happen.” Make sure your projections are realistic.

Prepare Your Spin

Present the current cash flow problem as a minor speed bump on the road to success. Scour your books for evidence that your business model is solid. Present your profit margins, encouraging initial sales figures, or the media attention you’ve received. Briefly address your financial concerns, taking responsibility for your part in the problem (i.e. “Our initial funding estimates were inadequate” or “We used an inaccurate pricing model for our earliest sales, and that hurt profitability”). Then use current contracts or other solid criteria to present your rosy vision of the future.

Approach Lenders

If your first round of funding dinged your credit score and you’ve maxed out your credit line at your regular bank, find a lender who specializes in alternative funding, such as Bad Credit Business Loans. These lenders are willing to overlook common credit issues in exchange for a slightly higher interest rate. If you believe in your business, you might happily pay that higher rate to avoid parceling out profit shares to investors.

Negotiate With Vendors

Vendors don’t want to see you go bankrupt, and your sales rep has a fiscal interest in going to bat for you. Discuss your current situation honestly and see if your vendors would be willing to grant you more lenient terms or finance a past-due balance so you can pay it off over time. Vendors will usually ask you to pay off this kind of debt even if your LLC or corporation declares bankruptcy, so be prepared to sign a personal guarantee.

Offer Prepayment Discounts

Would some of your bigger customers be interested in prepaying their contracts if you approached them with a generous discount? It’s common to offer a 10 to 20 percent discount for prepayment.

Seek Investors

Maybe you didn’t raise enough seed capital because you were unwilling to bring in investors. If that’s the case, reconsider. Start with your friends, family, and acquaintances. You might also invite your biggest customers to invest since they already like what you do.

Your business may be struggling, but you don’t have to give up. Prepare a proposal and go find some second-tier funding.