Her CEO Journey™: The Business Finance Podcast for Mission-Driven Women Entrepreneurs

Weekly show where my featured guests and I explore the financial and business challenges women face on the entrepreneurial journey to success. You'll hear them talk about the money side of their businesses in ways you've always wanted to know about, but wouldn't dare ask. They openly share their disappointments, failures, successes, and everything in-between as they grew sales ranging from 6 to 9 figures. Knowing where your business stands financially helps you make critical decisions with confidence. It's simply the best way to be sure you grow a business that fuels the life you want to live.

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episode 134: Her CFO Tips: Financing Strategy Based on Short-Term versus Long-Term Capital Needs [transcript]


Many founders shy away from debt financing because of a lack of knowledge. However, debt financing can be beneficial to businesses with a steady cash flow and existing assets. When you play your cards right, you can secure financing for your business without having to give any ownership away. 

In this episode, I’ll show you how to match your short-term and long-term capital needs to the right debt financing option. Then, I’ll give you 10 options for how you can finance your business, depending on your situation. Finally, I’ll show you the keys to securing any type of financing. Once you get these right, you can save your business from paying higher interest rates while also fulfilling your needs. 

Tune in to the full episode to know how you can grow your business through debt financing! 

Episode Highlights: 

  • [01:12] Choosing a Financing Strategy
  • [02:14] Short-Term versus Long-Term Capital Needs
  • [02:39] Equity Financing versus Debt Financing
  • [03:55] Short-Term Financing Needs Option #1: Trade Credit
  • [04:43] Short-Term Financing Needs Option #2: Overdraft Financing
  • [05:06] Short-Term Financing Needs Option #3: Revolving Loan
  • [05:27] Short-Term Financing Needs Option #4: Invoice Financing
  • [06:24] Short-Term Financing Needs Option #5: Purchase Order Financing
  • [06:39] Short-Term Financing Needs Option #6: Inventory Financing
  • [07:06] Short-Term Financing Needs Option #7: Payables Financing
  • [07:56] Long-Term Financing Needs Option #1: Equipment Financing
  • [08:36] Long-Term Financing Needs Option #2: Project-Based Financing
  • [09:00] Long-Term Financing Needs Option #3: IP-Backed Financing
  • [09:35] Keys to Any Financing Strategy
  • [10:03] Why Female Founders are Reluctant to Choose Debt Financing

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Connect With Me

Ready to transform your purpose into an impactful business financial story, profit, and joy? Schedule a chat with me at any time.

Resources

  • Visit Christina Sjahli’s website for related episodes on the Her CEO Journey™ Podcast.
  • Invoice Factoring: Financing Your Business Recovery and Growth with Prestige Capital - The Journey of Rachel Hersh
  • Changing the Future of Business: Slow Growth and Sound Financial Planning are the Secrets - The Journey of Badger
  • Growing Your Business with IP-Backed Financing - The Journey of Lally Rementilla
  • Download the Forecasting Guide so you can create a better and improved financial forecast for your business!


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   11m
 
 
00:00  Christina Sjahli
Many female
00:00
founders looking for growth
00:02
financing strategies are often
00:02
caught up in the hype of venture
00:06
capital. They are using multiple
00:06
rounds of capital raising, they
00:10
try to position their business
00:10
as a unicorn, and they think
00:13
giving away more equity is the
00:13
only way to finance their
00:16
growth. We believe there is no
00:16
one-size-fits-all. Every
00:20
business is different. Every
00:20
female founder is different.
00:25
You're listening to Her CEO
00:25
Journey, the business finance
00:28
podcast for mission-driven women
00:28
entrepreneurs. I'm your host,
00:32
Christina Sjahli. If you are new
00:32
here, a big warm welcome. If we
00:38
are not connected on LinkedIn,
00:38
please reach out and say hi,
00:41
because that's where I hang out
00:41
and share my business finance
00:45
tips. If you have been listening
00:45
to this podcast for a while, and
00:49
you are a regular listener, I
00:49
want you to know, I appreciate
00:53
you. My podcast won't be around
00:53
without your support. This is a
00:58
free weekly show where my guests
00:58
and I want to inspires you to
01:02
balance between mission and
01:02
profit, to create an impact in
01:05
this world, and to achieve
01:05
financial equality through your
01:10
business for good.
01:12
The type of financing you choose
01:12
depends on why you started your
01:16
company, where you are at within
01:16
your business, your future
01:20
vision, and then how fast you
01:20
want to get to your vision.
01:25
Specifically, for today's solo
01:25
episode, we are sharing debt
01:29
financing strategies based on
01:29
short-term versus long-term
01:33
capital needs.
01:35
There are various sources of
01:35
financing available, and each
01:39
source of financing is useful
01:39
for different situation. One
01:43
common mistake made by many
01:43
founder is mismatch between
01:47
long-term capital needs with
01:47
short-term debt financing terms
01:51
or vice versa. Choosing the
01:51
right source and mix of
01:55
financing option is crucial. So
01:55
it is important to first
02:00
determine your capital needs,
02:00
then match it with the right
02:04
financing option.
02:06
Financing options are often
02:06
classified into two categories
02:10  based on the time period
short-term and long-term. What
02:14
is the definition of short-term
02:14
versus long-term for the purpose
02:18
of debt financing? Short-term
02:18
means your cash flow gap or
02:22
capital need is less than 12
02:22
months and mostly related to
02:27
operating or working capital
02:27
cash flow. Long-term means your
02:31
cash flow gap or capital need is
02:31
longer than 12 months and
02:36
normally related to investing
02:36
cash flow.
02:39
Before we dive into more details
02:39
about the various debt financing
02:43
strategy, first, let's clarify
02:43
the definition of equity
02:47
financing and debt financing.
02:47
Equity financing is simply
02:51
selling percentage ownership of
02:51
your business in exchange for
02:55
cash from investors. And this
02:55
option is attractive when you
03:00
don't have a consistent cash
03:00
flow and no asset to secure debt
03:04
financing.
03:06
On the other hand, debt
03:06
financing is a promise made by a
03:10
company to pay the principal
03:10
amount borrowed plus interest
03:14
over a fixed period of time to
03:14
lenders or investors. Debt
03:20
financing allows you to maintain
03:20
100% ownership. That's a big
03:24
benefit. This is a great option
03:24
when you already have consistent
03:29
cash flow or you have assets to
03:29
secure the debt financing.
03:33
In addition to equity and debt
03:33
financing, there is also hybrid
03:38
financing, which is a mix
03:38
between debt and equity. We will
03:42
explore hybrid financing further
03:42
in the future. So stay tuned.
03:47
For now, let's dive into the
03:47
option you have for debt
03:51
financing strategies.
03:55
For short-term financing needs,
03:55
you want to consider the
03:58  following. Option one
trade
03:58
credit. This is simply the
04:03
credit period that is extended
04:03
by the suppliers you deal with.
04:07
Typically, on the invoice you
04:07
receive from suppliers, they
04:09
will say net 10 or net 15 or net
04:09
30 days, which means if you pay
04:15
before or within the period,
04:15
your suppliers will give you a
04:19
discount for paying within the
04:19
term.
04:21
However, if you pay the
04:21
suppliers past the due date, in
04:25
that case, you may need to pay
04:25
interest to the suppliers. So in
04:30
a cash flow crunch situation,
04:30
you may want to consider
04:34
extending the payment longer and
04:34
paying the extra interest to
04:38
your suppliers. But be careful
04:38
though, at times, it can be
04:41
costly.
04:43  Option number two
overdraft
04:43
financing. This is the same
04:47
concept as any bank overdraft
04:47
facility in your personal
04:52
checking account. If you
04:52
over-extended a payment above
04:56
the agreed limit, then the
04:56
interest is charged to the
04:59
extent the amount is used until
04:59
you deposit the amount as soon
05:03
as possible to save on interest
05:03
costs.
05:06  Option number three
revolving
05:06
loan. This type of financing
05:11
allows you to draw capital when
05:11
you need it up to a
05:15
predetermined credit limit. The
05:15
borrower only pays interest on
05:19
drawn or outstanding funds. An
05:19
operating line of credit is one
05:24
example of a revolving loan.
05:27  Option number four
invoice
05:27
financings. This type of
05:31
financings allows businesses in
05:31
need of a short-term cash
05:34
injection to get paid
05:34
immediately instead of waiting
05:38
for days or weeks to collect
05:38
payment from the customer. There
05:41
are two primary forms of invoice
05:41
financings: one is invoice
05:46
factoring, and the other one is
05:46
invoice discounting.
05:50
Both forms are about gaining
05:50
advanced cash against unpaid
05:54
invoices. But invoice
05:54
discounting is actually a loan
05:58
secure against your outstanding
05:58
invoices. While invoice
06:02
factoring, the factoring
06:02
companies actually purchase the
06:07
unpaid invoices outright. If you
06:07
are ready to learn more about
06:12
invoice factoring, have a listen
06:12
to Episode 64, where Rachel
06:17
Hersh from Prestige Capital
06:17
discuss how invoice factoring
06:22
really works.
06:24  Option number five
purchase
06:24
order financing. This type of
06:28
financing helps companies that
06:28
have a purchase order on hand
06:32
from a large client and need
06:32
financing to pay their suppliers
06:36
to fulfill the order.
06:39  Option number six
inventory
06:39
financing. If your company has
06:44
too much money tied up to its
06:44
inventory, you may want to
06:47
consider inventory financing. It
06:47
is a form of asset-based lending
06:52
that allows you to leverage your
06:52
existing inventory. It frees up
06:57
funds that can be used to
06:57
purchase additional inventory to
07:01
handle growing orders or pay for
07:01
ongoing business expenses.
07:06  Option number seven
payables
07:06
financing. Essentially, you
07:10
enter into an agreement with a
07:10
lender to pay your supplier
07:14
right away in cash when the
07:14
invoice is issued, and then you
07:19
will repay the lender at a later
07:19
date. Remember the trade credit
07:23
scenario I mentioned earlier in
07:23
option number one? Payables
07:27
financing only makes sense if
07:27
the interest costs charged by
07:31
the lender is lower than the
07:31
financing costs you have to pay
07:36
to the supplier for late payment
07:36
under trade credit.
07:40
There you have it. Seven debt
07:40
financing option to finance your
07:45
short-term cash flow needs.
07:49
Now, let's explore the financing
07:49
option you have for long-term
07:54
cash flow needs. Option number
07:54
one: equipment financing. This
07:59
is another example of
07:59
asset-based lending. But for
08:03
long-term assets. When you need
08:03
cash to purchase equipment in
08:07
your startup, then you can
08:07
approach a lender to borrow
08:10
money and use the equipment as
08:10
collateral. If your business
08:14
fails and cannot repay the
08:14
amount borrowed, the lender can
08:19
take the equipment to satisfy
08:19
the debt.
08:21
Equipment is a long-term asset,
08:21
so it's better you finance it
08:25
with longer-term debt financing.
08:25
Don't use your line of credit to
08:30
finance a long-term asset
08:30
because you will pay a higher
08:35
financing cost.
08:36  Option number two
project-based
08:36
financing. This is debt
08:40
financing for an infrastructure
08:40
or a long-term capital-intensive
08:44
project with a promise to pay
08:44
the lender back using the cash
08:47
flow generated from the project.
08:47
Listen to Episode 126 on how a B
08:53
Corp certified business financed
08:53
its solar panel project using
08:58
project-based financing.
09:00  Option number three
intellectual property-backed
09:03
financing, a debt financing
09:03
strategy where you receive cash
09:07
from a lender based on the value
09:07
of your intellectual properties.
09:11
Listen to Episode 131, where we
09:11
interview an alternate
09:16
commercial lender specifically
09:16
focused on intellectual
09:21
property-backed financing.
09:24
There you go. Now you have the
09:24
knowledge of 10 different ways
09:29
of debt financing strategies
09:29
broken down into short-term and
09:33
long-term capital needs. With
09:33
any type of financing, it
09:37
requires evidence that you can
09:37
grow. You have a business plan.
09:41
You can execute. You have proven
09:41
there is a market demand for
09:45
what you are selling. Your
09:45
business model is bringing in
09:49
revenue, and you have
09:49
sophisticated financial
09:52
reporting and controls. The key
09:52
in debt financing is to
09:56
understand why the cash flow gap
09:56
happens and having a plan to pay
10:01
back the loan.
10:03
Many female founders are
10:03
reluctant to choose debt
10:06
financing, even after their
10:06
business has consistent cash
10:10  flow because, number one
lack
10:10
of clarity and plan on how to
10:14
pay back the debt financing.
10:14
Number two: lack of knowledge on
10:19
the different types of debt
10:19
financing out there, but now you
10:23
have the knowledge. Number
10:23
three: lack of understanding of
10:27
cash flow management. As a
10:27
result, they made a mistake of
10:31
mismatching short-term needs
10:31
with long-term debt financing,
10:36
which results in a significant
10:36
capital cost in the long run.
10:40
If you are at a point where you
10:40
don't want to give up any more
10:44
equity ownership and considering
10:44
debt financing, make sure you
10:48
understand your business cash
10:48
flow requirement for the next 12
10:51
months, as well as the next 24
10:51
to 36 months down the road. When
10:56
you are ready to have a trusted
10:56
partner to take care of the
11:00
business finances and allows you
11:00
to focus on what you love:
11:05
building, connect with us at
11:05
christinasjahli.com/lets-chat.
11:12
And that's brings us to the end
11:12
of another show. Thank you so
11:16
much for listening to another
11:16
episode of Her CEO Journey, the
11:20
business finance podcast for
11:20
women entrepreneurs. If you want
11:24
to create a proactive financial
11:24
plan and process for your
11:28
business, so you are ready to
11:28
weather the financial storm over
11:32
the next few months, let's chat
11:32
and see what's possible for you.
11:37
Book in a time to speak with me
11:37
at
11:39
christinasjahli.com/lets-chat.