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Six Reasons Why Debtor Finance May Be The Best Solution For Your Small Business

Six reasons why Debtor Finance may be the best solution for your small business


It’s a difficult time for the economy, and in particular, small businesses. Just as the current situation was looking up, things have come hurtling back down. Border-closures are back, Victoria braces for the worst lockdown yet and no one seems to know what the future will hold. Heightening operating and financial uncertainty makes it extremely difficult to plan ahead. Many small businesses are scrambling to access all the tools available, to not only weather the storm but emerge in a position of strength. We’ve covered the details of the COVID-19 stimulus package that has mostly now been extended into next year. Nonetheless, these measures won’t last forever, and you need a reliable financing solution moving forward to support your working capital. If there’s one positive takeaway from COVID-19, it’s that flexibility and adaptability is integral to modern business. The same applies to finance your business. Debtor finance is a scalable source of funding that might be the perfect solution to help sustain your cash flow and grow your business. Here are eight reasons why debtor finance might be your best bet:

Reason #1: Your business is growing fast

If you’re lucky enough to be expanding rapidly, you’ll know that fantastic growth can also come with fantastic headaches. While a substantial lift in sales is seldom a bad thing and deserves celebration, it may also place severe pressure on your cash flow. “Debtor finance provides immediate funding based on your growing sales.” Why? If you sell goods and services on credit terms, it may take up to sixty days to receive payment from your customers. During this time, your business will need to fund any supplies, stock and additional staff payments to meet the increased orders – leaving you in a hole. Debtor finance provides immediate funding based on your sales (backed by outstanding invoices), meaning your access to cash flow is linked to your working capital requirements.

Reason #2: You need funds quickly

A loan from a big bank can take weeks, if not months, to get approved – especially in the current environment. If you are overwhelmed with your current duties as it is, this time is precious. Debtor finance facilities are often approved within two days, allowing you to apply and access funding within the week. If you’re tired of missing out on growth opportunities or the funds to fuel your business due to slow processes, debtor finance may be the right alternative solution to boost your cash flow, fast.

Reason #3: Your sales move with the seasons

Debtor finance helps reduce variance in your cash flow throughout the year. Consider a local small business that sells snow gear. The vast majority of their sales will come during winter months as visitors gear up to hit the slopes. This business needs to make sure that the cash they have access to matches their peak periods, and their liability doesn’t extend to the slower summer months when less money is coming in. Debtor finance provides you optional access to funds when you most need it.

Reason #4: Avoid supplying property as security

It’s one of the few financing options that do not require property as security. Many business owners are understandably hesitant to take out a secured business loan or overdraft facility that hinges on the value of their important personal or commercial real estate. Debtor finance allows you to keep these assets separate, giving you the option to borrow against them or make use of them in another capacity.

Reason #5: Planning a succession or divorce

Debtor finance sets your business on its own two feet. As the facility is linked to only your business assets, your personal affairs will play a limited role in your business’s financial obligations. Unfortunately divorces or family issues often impact personal property – if it’s used to secure a business loan or line of credit, there will understandably be implications. For the same reason, if you are planning to offload the business to a new owner or family member, then there is no requirement that they supply sufficient personal equity.

Reason #6: You lack extensive trading history

Some debtor finance providers will look past the usual financing mantra that requires your business needs to have been trading for more than two years. Funding can be incredibly difficult for start-ups and other new businesses since they don’t have this history under their belts. If you’re a new operation with growing sales and an impressive outlook, debtor finance could be the key to unlock cash held up in your outstanding invoices.

Need further advice? Get in touch with a debtor finance broker

In our last article, we discussed the benefits of using a great debtor finance broker to help secure the best deal for your business. They have your best interests at heart and possess the skills to represent your business favourably, negotiating with finance providers on your behalf. Whether you’re looking to sure-up your cash flow or take your growing business to the next level, an experienced debtor finance broker is your best point of call to discuss the options available. The team at Capital Plus Finance will do everything we can to help you secure a suitable finance solution for your small to medium business. Please give us a call anytime to find out more or to have an obligation-free chat about your business’s funding situation.