How do we go about finding resources to cover a temporary monthly cash shortfall, before generating revenue? We are a technology platform that has recently repositioned with a new go-to-market strategy. But still being in the pre-revenue stage, we need $5,000-$8,000 per month to cover ongoing contracted expenses. Whom should we approach?

Dave Kuettel,


Cash flow is the lifeblood of a business and this is an excellent example of why it is so important. There are a number of options here. The first step is to establish a relationship with a business banker if you don't have one already. She may have several different options based upon your specific circumstances. Among the various banking loans she might suggest is the line of credit. This type of loan would allow you to borrow only what you need and would also allow you to immediately pay it off when cash flow becomes positive. Or she may suggest a more standard, amortizing loan where you have to borrow the maximum amount you think you will need all at one time.

A potential problem is that the bank may require collateral. If the firm has assets that are owned free and clear, those could be pledged. If not, then the owners of the business may have to put up their own assets (homes, etc.).

If going to the bank is not an option, then do an Internet search for "receivable factors" or "receivables buyers" in your area. "Factoring" is the practice of selling the rights to collect on your accounts receivables in exchange for cash today. But the discounts given to factors can be quite large.

A third approach would be to do internal financing. For instance, one could try to approach your employees and vendors to see if they will accept deferred compensation. In lieu of receiving payment today, would they accept payment plus a cash bonus later? The final, and most drastic, option would be to approach employees and vendors and see if they would accept an equity position in your company in place of their usual compensation and payments.

About the author: David O. Vang, Ph.D., is a finance professor at the University of St. Thomas Opus College of Business.