Whether you need to bridge the gap one month or want to extend your business, it often comes down to financial help. There are different types of help available, including business loans, grants and invoice factoring. They are all helpful for different things but have different requirements and needs to be approved for them.
Invoice Factoring for Bridging the Gap
Those who work business-to-business (B2B) could benefit from invoice factoring when they have trouble with their cash flow. This helps to bridge the gap temporarily by using your invoices to prove that you can pay the money back. The invoice factoring companies will loan up to a set percentage of the total invoices due – usually no more than 85% -- and add on a small fee.
Many factoring companies will take over your books. This ensures they get their money back, by taking the percentage you borrowed from each invoice as it comes in. You can then use the money to clear your own debts without worrying about other cash flow issues.
Asset Financing for Short Term Loans
If you don’t like the idea of invoice factoring – or can’t opt for that one – asset financing is another option. Companies can borrow money and secure it against their assets and inventory. It offers the short term bridge if your cash flow isn’t perfect one month or you’re waiting for overdue payments.
Bank Loans for Extensions
If you want to help your business grow but don’t have the capital, a bank loan could help. These can have high interest rates though and be difficult to get, especially if your business hasn’t built up much of a credit rating in the past, so you will need to think carefully. The banks are worried that you will not make the return on the investment and will scrutinise your business and financial plans.
Banks are not the only place to get these types of loans. There are smaller lenders willing to invest in companies. Always make sure you deal with reputable lenders or investors and consider the terms of the financial options before agreeing to anything.
Government Grants for Certain Needs
There are a number of government grants available for businesses. These can cover a variety of options but do have strict requirements to them. You will need to see if you qualify for them before filling out an application form to save yourself time and hassle.
The benefit of government grants is that most don’t need to be paid back in the future. They’re not a loan. The government is giving you money to help your business grow – or in some cases start! However, you will need to look into the details as some do require repayments but they will state that clearly upfront.
When you need extra money, it is important to think about how long you need to borrow it for and whether you need to borrow it at all. There are many options to choose between but they have different requirements and contracts.
Keith Tully has written many business related articles for Real Business Rescue. Over the past year, he has written about the responsibilities and duties of directors, improving cash flow and options available if your business is insolvent. Real Business Rescue offers practical and professional advice from insolvency practitioners for business owners and company directors facing insolvency.