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Every business must obtain some kind of business finance to achieve its goals, whether it is self financing, loans or investments. Most often financing will come from both equity and debt. While each carries risks, equity financing is, in the long run, more costly than debt. When it is necessary to finance an investment with debt rather than equity, funding can be arranged to help with cash flow and provide working capital, as well as fund corporate restructures, acquisitions, capital investment and expansion into new markets.
Obtaining a business loan is not as easy as it once was, particularly for the company seeking business finance for the first time. Many banks are recalling credit or refusing to renew credit, making even the long trusted overdraft an unreliable option at best. Factoring, invoice discounting, asset based lending, and commercial mortgages are quickly becoming the best options for balancing cash flow and securing funds for growth, simply because banks prefer to lend money on a secured basis.
Factoring and invoice discounting are both types of business finance designed to provide cash advances against invoices as a solution for cash flow problems, provide the money needed for daily operations and to facilitate quicker growth. Invoice discounting, as opposed to overdraft, has no upper limit. It is a revolving finance option that can convert invoices from trade debtors into cash in a much shorter period of time. Advances of up to 90% of invoices may be made in as little as 24 hours.
Asset based lending allows companies to borrow money against existing stock holdings; it can be used in conjunction with invoice discounting as a solution to increase cash flow. The benefit of increased flexibility in business planning can be helpful in filling in the gaps many seasonal businesses experience.
Commercial mortgages are designed to fund expansion of a business or to develop new premises. Despite the recent credit crisis, real estate can still be a valuable long term asset. Over time, a commercial mortgage may not cost any more than rent or lease payments.
While unsecured loans and overdraft may still be available for some businesses, in today’s economy there is no guaranty these types of funding will remain available. Borrowing against invoices, property and other assets provides a means of managing cash flow and gaining money for growth.