If you are looking to secure financing for your business, you need to be aware of the many options available. Only then can you make an informed decision about which will best suit your specific needs.
Business credit cards and overdrafts
These options can both be arranged by your bank. Any business can have a dedicated business credit card, although the interest rates tend to be high. It is sensible to establish an overdraft for short-term and fluctuating expenses. In both cases, pay back the money owed as quickly as possible.
Trade credit
If you have built up a good relationship with a supplier, they may be willing to allow you to delay payment for a short period. This will allow you time to collect payments from your customers.
Invoice financing
Sometimes, you provide your goods or services but do not receive payment until a few months later. In these cases, you can borrow against the outstanding invoice.
Merchant cash advance
Rather than being based on your outstanding invoices, this relies on the receipts from your card payment machine. You are paid in advance, based on future expected receipts, and pay back the money via a fixed percentage when the receipts are received. It is not available from all merchants.
Asset finance
The purchase of new vehicles or equipment is often funded by asset financing. Either the asset being purchased is used as security, or the lender continues to own the asset until the loan is settled. If using personal assets, a director guarantee may be required. Independent legal advice from a law firm such as https://www.parachutelaw.co.uk/director-guarantee should be sought before signing.
Hire purchase
Used for larger and more expensive equipment and vehicles, this allows the business to use the purchase before they have fully paid for it. There is normally a 10% deposit; however, unlike lease financing, there is no balloon payment on completion.
Lease financing
This is similar to a hire purchase, allowing you to borrow larger and more expensive equipment whilst continuing to make monthly payments. Once you have paid the final balloon payment, the item is yours. Whilst you are leasing the equipment, you will have maintenance responsibilities.
These are just a few of the available types of business funding, mostly aimed at short- or medium-termed financing. You should research your options carefully before deciding which is most suitable for your business.
