Are you facing a busy period? Have all your customers paid you promptly? Are you looking to capitalise on new opportunities for 2019? If you answered yes to any of the above you could be missing funds to keep your books in the black. After forecasting sales and factoring in expenses, your business might be in need of a cash injection at short notice.
Before taking the leap into short-term finance it’s best to familiarise yourself with your options and consider how they fit with your business. Here I present some of the pros and cons they could offer whilst conquering cash flow, as told by Max Verploegen from Spotcap.
Overdraft or credit card
Many businesses look to an overdraft or credit card for extra funds. Both can help with seasonal trends and short-term cash flow challenges. The option to pay back within a month interest-free means they can be the perfect solution for those unexpected purchases.
That said, businesses quickly stretch their limits once they need larger sums or want to borrow money for longer than a few months. Whilst credit cards can be taken in the name of a business, someone is needed to be taken personally liable.
Perhaps business has been healthy, but you’re waiting on payments? Invoice finance lenders offer an advance between 80-90% of what an invoice is worth. If you regularly invoice businesses this could be the perfect option when funds are needed at short notice.
However, this funding method only works for businesses who sit on commercial invoices. If you work primarily with consumers, you’ll have to look for finance elsewhere. The fact that finance is based on incoming payments means you’re only borrowing within your means. Whilst this is good news for repayments it can mean that invoice finance probably doesn’t suit bigger purchases
If you’re an established business with high-value assets this could be the perfect solution for you. There’s no need to worry about working with consumers or commercial invoices as your inventory, equipment or even premises are used as a guarantee for a loan. Asset finance could allow you to borrow a greater sum of money than invoice finance or a credit card. Perfect for bigger projects.
If you fail to make repayments on an asset-based loan, be prepared to lose that collateral. Asset-based finance may work well for larger businesses, but the larger sums it could offer your business come at a tangible price.
Unsecured business loan
Most long-term business loans are secured against commercial assets, personal assets or require a personal guarantee from a business owner. There are some lenders, however, which offer unsecured short-term loans to established and profitable businesses, without the need for a personal guarantee. All made possible thanks to their comparably strict assessment criteria.
If you’re considering an unsecured loan, interest payments are likely to be higher than with asset-based lenders or traditional bank loans. Something many business owners are happy to do given that they don’t have to put an asset or their house on the line.
Finding the right finance for your business between payments can feel like walking through a minefield. Weighing up the pros and cons mentioned above should help you to come to an educated decision that fits your specific needs.