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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
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.