Every business, small or large, needs sufficient capital to support its current operations and expand into new ones. Most companies will never generate enough surplus capital to grow purely organically, and if they do, it will take them far longer to do so than if they accessed some outside help. As such, almost every business turns to finance at some point in their journey. The problem? Securing access to finance isn’t easy, especially for small to medium enterprises (SMEs). According to the RBA, small business perception of access to finance is at an eight-year low, exacerbated by COVID-19.
Fortunately, there is an increasing number of finance options available to help businesses like yours find the funding you need to grow and prosper. Whatever choice is right for you is dependent on your situation, the reason you want to borrow as well as the amount you need access to. Regardless, consulting a business finance broker is your best bet to determine the optimal solution for you. Here are six of the best financing options they may recommend to you.
#1: Business credit cards
Credit cards are simple for most business owners to understand since they already likely use them to manage their personal finances as well. Just like a personal card, business credit cards may offer a range of rewards and benefits, as well as the interest-free periods typical of a regular credit card.
If you’re on top of your cash flow, this is an excellent option since you can reap the rewards and benefits for no additional cost. However, suppose you come under pressure financially and miss a payment. In that case, interest will accrue rapidly, and your business credit score will take a beating, making it harder to secure finance in the future. A credit card may be a feasible short term solution; however, in the long run, you’re better off looking elsewhere.
#2: Unsecured business loans
Unsecured business loans are another easy to understand finance option. Since they don’t require collateral, most businesses can access an unsecured loan from a non-bank lender. They will assess your cash flow, and if sufficient, you can have funds deposited in your account within a few days. They’re a great way to secure short to medium-term funding no matter where you are in your business journey. Just make sure to really understand the costs involved and whether it’s worth it for the purposes you want to use it for.
#3: Equipment finance
Equipment finance is an increasingly popular financing solution that is used to facilitate the purchase of business equipment, commercial assets such as machinery, and even vehicles, such as cars, utes and trucks. Often, purchasing new equipment is prohibitively expensive as the upfront cost is substantial. Equipment finance allows you to spread your repayments over years. Since the finance is secured by a physical asset, the cost of funds is usually lower than an unsecured loan or a credit card. If you’re looking to purchase an asset, equipment finance is the smart way to do it.
#4: Debtor finance
“Debtor finance is an extremely flexible and scalable financing option.”
As long as your company sells your goods and services to other businesses (and therefore issues an invoice), you probably have access to debtor finance as a financing solution. Debtor finance is an advance on the money owed from your outstanding invoices. Financiers will pay your business up to 95% of the verified outstanding invoice value, often within 24 hours. Debtor finance is an extremely flexible and scalable financing option as it acts just like a secured business line of credit. When your sales increase, so does your access to funding.
#5: Angel investors
Angel investors are not always a miracle sent from the heavens, although an investment from the right ones can do your business wonders. They are people looking to invest their capital into early-stage ventures for a share of ownership (or similar) in your business. If you go down this route, you’ll need to be willing to let go of some equity and also be comfortable with the additional oversight of the investor. In return, angel investors may offer valuable advice and help alongside their financial contributions.
#6: Trade finance
Trade finance is most commonly used by manufacturers, importers and wholesalers, as well as any business that benefits from financing the purchase of their inventory and raw materials. Essentially, trade finance is a revolving line of credit that helps these businesses close the gap between input purchases and the sale to their customers.
If your business is looking to grow, maximise trade through the busy holiday period or refinance an existing facility, Capital Plus Finance is an experienced finance broker that has your best interests at heart. The team at Capital Plus Finance will do everything we can to help you secure a suitable finance solution for your small business. Please give us a call anytime to find out more or to have an obligation-free chat about your business’s funding situation.