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4 Tips for When Your Business Is Strapped for Cash

This article originally appeared on Inc.com as part of BusinessBlocks CEO Justin Kulla's weekly Inc. Magazine column. To see the original post, click here.

In our recent webinar with NerdWallet, we met a customer whose business was doing well. He had moved his shop into a bigger space, and he expected to see an increase in customers and sales. What he did not expect, however, was falling into a cycle of debtfrom working with the wrong lender. Unfortunately, his story, like so many others, is all too common for entrepreneurs strapped for cash.

Running a small business can be unpredictable. Sometimes a client may be late in paying an invoice. Sometimes you hit an unexpected low season. And sometimes, like in the example above, you need a little capital to take on a big opportunity that could be game-changing for your business.

Obviously, cash flow can be a huge problem for smaller businesses. In fact, according to a U.S. Bank study, 82 percent of businesses that fail do so because of cash flow problems.

So what happens when you need capital fast? While traditional bank loans and credit cards are obvious options, many new players have entered the lending space, some of which let you apply, get approved, and access funding in minutes. There isn't a perfect lending option, but it is important to think about the pros and cons of the different lenders before making your decision.

In particular, you should make sure to avoid predatory lenders who may exploit your need for quick cash. Take a look at these four tips for small business lending:

1. The SBA is your best friend.

There is a common misconception that the Small Business Administration gives out loans. In actuality, they provide a guarantee to banks and lenders in the event that you default on your loan. This option is great for businesses who don't fully satisfy the requirements of a traditional bank loan, and who need a little help in getting approved.

What's the main downside? Added paperwork and a long review process. So if you need money right away, you'll need to explore other options.

2. Try a business line of credit.

This is very similar to having a business credit card, but it allows you access to cash. You can apply for a line of credit from your local banks but you can also explore online lending options like Kabbage and BlueVine.

3. A merchant cash advance should be your last resort.

There are some obvious perks with using merchant cash advances. Sure, they make it easier for businesses with bad credit to get a loan. And yes, they provide access to funding instantly.

However, the fees are typically way higher than traditional loans. A merchant cash advance also severely limits your cash flow since you pay the loan back through your daily cash transactions. That means every sale you make, a percentage of it goes directly towards paying back your loan.

4. Try leveraging a community of lenders.

Peer-to-peer lending matches lenders with individuals or businesses through online services. This service expands the lending options beyond bank loans and business lines of credit. You can try sites like Funding Circle, Lending Club, and Street Shares to start finding potential matches.

In addition, you could use a crowdfunding site such as GoFundMe to raise funds from your network. Lexi and Matthew, owners of Rumor Mill Fusion Bar and Restaurant in Maryland, created a GoFundMe project when their store was destroyed by a flood. They were able to raise more than $27,000 and rebuild their neighborhood restaurant.

Since it's impossible to predict specific funding challenges, the best strategy is to be prepared. Knowing your funding options, and which ones won't take advantage of you, could make the difference for your business.