Last Updated on Dec 24, 2019 by James W
Whatever your business, you probably needed external finance to start up. Buying in equipment, paying for publicity, premises and simply keeping the lights on until you were making a profit – it probably took borrowing of some form.
If your business is now established you might think that you no longer need external finance – but you could be very wrong. If you can only grow by reinvesting your profits, your business is being held back.
Borrow now, and you can invest in growing your business – with the result that your business grows faster, and your profits can grow with it.
If you are going places in business, you can go further with finance
The fact is when your business was a start-up, getting the funding you needed was a challenge. This is simply because many lenders don’t like to lend to start-ups – because they have no guarantee that the business will be a success and that they will be repaid.
Those that will lend may, therefore, demand higher rates of interest to cover their risks.
The good news is that when your business has been running for a year or two, you will have accounts that you can show lenders, which will prove that your business is profitable. They will also be able to check out your business online. This means they can be much keener on lending you the money you want – and charging you much less to do so.
But it is still vital to get the most appropriate kind of funding for any particular business purpose.
Business loans used to be the main kind of business funding – and banks were the main providers. These days, there are many other lenders who can provide loans faster – even some who those who can arrange finance in minutes online.
Choose an unsecured loan for smaller sums – but you may need a secured loan for larger amounts of £250,000 or more.
Vehicles, tools and equipment of all kinds are essential to grow your business. They can be costly – but there are several ways to finance these assets which mean you don’t start paying for them until they have already started working for you, and paying for themselves. Hire Purchase and leasing are two forms of Asset Finance which allow you to spread costs – and there are special arrangements, such as Contract Hire, which are ideal for vehicles.
Commercial Mortgages can help you buy your business premises, or premises for investment or development. Like residential mortgages, terms can run for up to 25 years or possibly more. However, unlike residential mortgages, Commercial Mortgages do not have set rates – you will need to provide a detailed business plan and the better your business proposition, the better the rates you are likely to be offered.
Having to wait weeks or months for invoices to be paid can mean a cash flow crisis for businesses which deal with other businesses. Invoice Finance could provide a solution. A lender will provide partial payment as soon as you issue an invoice to a customer. The remainder will be paid to you, minus fees, once the customer settles the outstanding balance.
Merchant Cash Advance
If you take payments through a card terminal or PDQ machine, you can use a Merchant Cash Advance to bring you cash.
The lender works with your payment processing company, who give them access to your recent transactions, and may advance you an amount based on your recent payment levels. The standard maximum is one month’s turnover.
What makes Merchant Cash Advances attractive is that you don’t need to make set repayments. Repayments are taken as a percentage of your card takings every time a customer uses the machine and pays by card. So, the more card transactions you do, the faster you repay the advance.
Funding large orders from suppliers – especially overseas – can be difficult.
With Trade Finance, your lender will fund the stock your business needs, paying your supplier directly and securing the finance against purchase orders and finished goods.
You then repay your Trade Finance loan once you’ve sold the goods.
Having access to funding will give you cash buyer status, potentially helping you negotiate on price – but it is only likely to be available for established businesses.
Revolving Credit Facilities
Revolving Credit Facilities work in a similar way to bank overdrafts, although they are not based on a bank account.
They provide a Line of Credit, with a limit agreed in advance that you can call on if, and when, you need it.
You only pay for the money you actually take out, so it can be a cost-effective way to raise funds if you need them in a hurry.
Finding the most appropriate funding for you
With all of the different types of business finance available, knowing that you have the solution that is most appropriate for your needs can, itself, be a problem.
Expert help can be essential. Business funding advisors exist who can help you find the funding your business needs – and from the most cost-effective lenders. If you are looking for funding, they might be the best place to start.