If you want to grow your business, chances are you will need access to finance. But not all finance is created equal. Suppose the thought of putting up your home for security makes you nervous. In that case, we explain the alternative finance options open to business owners.
Access to finance is one of the biggest inhibitors to small business growth. Late payments impact the working capital of many business owners, which in turn limits their ability to grow. With many traditional lenders requiring small business owners to put up their homes as security on a loan, the sector is in dire straits.
Scottish Pacific’s recent SME Growth Index found almost one in 10 business owners are using personal credit cards for business expenses. While three out of four businesses use credit cards to help manage cash flow because they cannot source any other finance. But it doesn’t have to be that way. Alternative finance options are available.
For your best chance to receive finance you need to ensure you have the right funding to fit your business. Launched as a joint venture between fintech Scottish Pacific and the Australian Small Business and Family Enterprise Ombudsman, the FitsMe Essential Guide to Business Funding delivers a five-step process to financial fitness.
The guide outlines various funding options available to small business owners. Ombudsman Kate Carnell hopes the information in the directory will assist small business owners and their advisors in finding the right funding to suit their needs.
At the time of launch, Carnell told Kochie’s Business Builders that many young small business owners were feeling the pinch of the credit crunch.,
“One of the things we know, particularly for young business owners – and we’re talking people up to the age of 45 – many of them don’t have much equity,” says Carnell.
“They don’t have a lot of equity in bricks and mortar, and banks have only traditionally lent based on the equity in bricks and mortar.
“So, what this document does, is explain the other sources of finance that exist. Everything from fintech to invoice financing to trade financing. There are a lot of different products in the marketplace, and it talks about the different pros and cons and scenarios that each type of funding is most appropriate for.”
So what are the alternative finance options?
Did you know it takes small businesses 56 days on average to get paid? At any one time, they have almost a third of their revenue tied up in outstanding invoices? That’s what makes invoice financing so appealing. Invoice financing puts tomorrow’s payments to work for your business today. It allows you to unlock the value in your outstanding invoices to enable you to meet your current commitments. It frees up cash flow and operates similarly to a line of credit. The big difference is your invoices act as loan collateral, and there is no need to use your personal property to secure the finance.
Asset financing allows you to unlock the capital within assets you already own. You can use it to fund the purchase of new assets like equipment or vehicles that will help you expand your business opportunities. Terms are flexible – up to five years – and funding approval is in as little as 24 hours. Another bonus – you don’t have to purchase new equipment. Asset funding can buy new or used assets. As for the assets, generally, any business asset that depreciates can be used as collateral for asset financing.
If you are in the business of manufacturing PPE, chances are you’d be familiar with trade finance. Why? Trade finance is ideal for companies that need funding fast to purchase new stock or raw materials so that they can keep up with the demand for further orders. It often uses a revolving line of credit to pay your suppliers. If dealing with overseas suppliers, it can when you needed, facilitate transactions using TT (telegraphic transfer), Letters of Credit or Documents against Payment. Trade Finance closes your working capital gap between sales and procuring inventory or raw material, fast.
For an importer, it means receiving funding to pay a supplier and allow time for the goods to be accepted, sold and turned into cash. For an exporter, it provides working capital until the overseas customer pays for the goods or services delivered. The benefit: your business can continue to capitalise on growth opportunities.
This article was first published on Small Business First. You can see the original content here.