There comes a point in most business lifetime where a cash leg up is needed. That may be at the beginning, or it may be during a growth spurt that propels your business to the next level. Financing your business allows you to enables you to get to where you want to go, but you need to be smart about it. It’s important to weigh up your options and make the right choice for your company. Here are the best financing options to consider for your business.
Business loans are a very common finance option for startups & beyond. Most often, this takes the form of an instalment loan whereby the lender pays out a lump sum and the business owner makes regular repayments, with interest added on top. Nearly all potential lenders will want to see a business plan with forecast to give them the confidence to make the money available to you. They will also do a credit check on the business and sometimes the business owners. Often they will ask for a personal guarantee from the owners too. They will make an assessment of the risk of lending this money and that will impact the rate of interest that is charged. It’s worth doing your research to find the best rates possible. In addition to a bank, it’s also thinking about applying to credit unions, nonprofits and microlenders for a business loan.
This is often a forgotten source of finance. There are several advantages to using a business credit card. Even if you’re a sole trader, it’s advisable to separate your personal and business accounts as soon as possible for transparency purposes. Moreover, a business credit card provides a clear picture of your spending habits, highlighting areas where you may be able to cut costs, as well as offering additional protection over the purchases that are made. This is very important in an age where financial fraud is increasing.
On top of this, business credit cards can really help with cash flow. The interest-free period allows you to delay payments for a limited amount of time at no extra cost to you; the exact length of time varies by provider.
Many credit cards also come with attractive rewards and benefits, such as cashback and air miles which can save you money later on.
A business credit card is certainly an appealing option so long as you carefully manage it. Late payments can result in a hefty amount of debt. If you want to borrow a significant amount of money in the long-term, a bank loan will likely serve you better. That being said, a credit card can be very helpful in terms of convenience and cash flow.
An overdraft is a useful method of finance on which you only pay interest when you use it. It is a short term method of finance however as in the longer term it can be quite expensive and also attracts an annual fee for the facility. Overdrafts are payable on demand however, so you could be in for a shock if the bank suddenly call it in and you are forced to look for alternative methods of finance in a hurry.
You’ll need the right equipment to run your business, but buying it all outright can create serious cash flow problems. Remember that the expenses don’t end with purchasing equipment; you’ll also have to maintain, upgrade and repair it regularly to keep things running smoothly. Therefore, if you require a lot of equipment it’s worth looking into equipment financing. There are two main options available to you:
Last but not least, the past decade has seen an explosion in the popularity of crowdfunding and there are many different types, so it's worth looking into the different options available to find the one that is most suitable for you. Depending on the type of crowdfunding, money is either in the form of a donation, in return for a reward or as an investment in the shares of your business. Unlike a loan, equity based crowdfunding doesn’t have to be repaid, but it does mean that you'll have shareholders in your business who will be expecting a return on investment at some point. Crowdfunding requires a lot of time and effort and is not to be taken lightly, but there are many success stories of small businesses who have gone to achieve great things with finance from crowdfunding.
It’s worth carefully weighing up your options to consider which method of financing best suits your business. A useful rule of thumb is to match the source of finance with the reason of borrowing, e.g. equipment lasting five years would be well matched to a five year loan, where as a short term cash bridge could be effectively and easily financed with a temporary overdraft. Financing might seem daunting, but the right option will put your business in a strong position and help to pave a smooth path towards future success.