Securing external finance can be a great way to catapult your business to the next level. It’s not always possible, or practical, to wait until you have saved the cash needed to take the next step — sometimes you need to seize opportunities as they come. Business finance is more varied and accessible than ever. Once you’ve secured funding, add it to your forecast for insight about which direction to take next in your business. Here are five examples of funding options that can help you grow.
An unsecured business loan is a popular option for a quick cash injection. The loan is ‘unsecured’, meaning you can access the cash without having assets in your business to put up as security. This increased level of risk for the lender usually means these are limited to businesses with strong profits.
As director, you may also be asked to provide a personal guarantee to further satisfy the lender’s requirements. This means you will be held personally liable if the business defaults on its loan repayments. It might sound daunting, but putting up a personal guarantee demonstrates confidence and commitment to your business. It can also mean the difference between securing cash, or not.
Business finance is not just about loans. You can now get more bespoke, tailor-made solutions designed to meet particular funding needs. Although it’s something of an umbrella term, asset finance essentially enables you to get equipment without having to pay for it upfront.
It mainly falls into the categories of hire purchase and leasing – one enables you to buy an item by spreading the cost over a period of time, the other is more like renting the asset for as long as you need it.
Imagine how much money your business would have at its disposal if only all those outstanding invoices were paid on time. Invoice finance is the answer to that problem. Late payment or impractically long payment terms often cause cashflow problems for small businesses that could be stifling growth plan.
Unlocking that money could be enough to help you kickstart the growth needed to take your business to the next level.
With invoice finance, once an invoice is raised, the lender will forward you the majority of the cash straight away (usually around 85%) and settle the remainder, minus a service charge, when the invoice is paid by your customer.
Trade finance is designed to plug the cashflow gaps in the international trading cycle. For some businesses, delays between placing orders, receiving goods, shipping goods and receiving payment can be a barrier to international trade – and therefore growth.
It helps plug one of those gaps by enabling wholesalers, distributors and importers to pay for the supplies they need to get the process underway. A lender will pay the supplier for you and you pay them back once the customer’s payment is received at the end of the cycle.
It essentially provides continuous access to a pre-approved pot of money, like an overdraft without the bank account attached. Borrow up to an agreed limit and once you have paid some back, you can borrow more. The loan automatically renews, or ‘revolves’.
It’s generally a quick and convenient way to get money without having to apply for a new loan each time. The loan amount is usually based on one month’s revenue, and because cash can be accessed within hours the interest rate tends to be quite high. However, given that revolving credit facilities are designed for short-term access to cash, an annual percentage rate (APR) isn’t necessarily a useful comparison, and they can work out cheaper in practice depending on how you use them.
This article hopefully goes some way to providing a general overview of just some of the many funding options for business growth available in today’s thriving alternative finance market. There are of course various caveats, eligibility criteria and other factors to bear in mind for particular solutions, but hopefully, you have enough here to point you in the right direction. Of course, the Funding Options matchmakers are always on hand to help you find the right lender for your situation.
Conrad Ford is Chief Executive of Funding Options, recently described by the Telegraph as “the matchmaking website for small businesses and lenders”. Funding Options has been selected by HM Treasury to help businesses find finance when they’re unsuccessful with the major banks, as part of the Bank Referral Scheme that launched in November 2016. @FundingOptions