There comes a time where a business, be it big or small, requires immediate funding to boost it. If you are an owner of a small business or plan to start one, you will also need funding at some time.
For a long time, traditional loans have been a means of solving the financial problems that businesses face. Unfortunately, some small businesses are not afforded the same treatment as big businesses by banks. They are marginalized and unable to obtain credit facilities from banks.
Lenders have strict conditions that one has to meet to qualify for a loan. If those conditions are not met, then you can opt to sell your personal assets, use some of your savings, or even borrow with your home as security.
The above options can be practical funding solutions, but there are also other viable options that you can use without disposing of your property or putting your home at stake. Below are practical finance solutions for small businesses.
It is not the best option for the condition that not all small businesses can access credit facilities from banks. This financing solution is only viable for those who have been in business for a long time and with better credit scores.
If you are a new small business owner, it can be quite difficult to obtain a loan from lending institutions. At the same time, you can be in business for a long time, but for one reason or another, your credit score puts you out of the equation.
Fortunately, there are proven ways that you can use to better your credit score. You can use a credit booster to enhance your score, thus giving you the ability to access credit from banks.
This finance solution involves using the assets that you are about to buy as security. This means that a lender who will extend the credit facility to you will be the owner of the asset until you make all of your loan repayments.
Depending on how you want to disclose your assets in the financial books, you can use asset financing for hire or lease purchase. With hire purchase, the asset can be disclosed in the statement of the financial position, while in lease purchase the asset is disclosed after full repayment has been made.
As a small business owner, if your scope of operations is B2B, then you will often receive invoices and payments made later. You can use these invoices to obtain a credit facility from a lender. The loan amount is usually a percentage of the invoice amount.
The lender will then deduct the loan disbursed from the invoice payments that will be made and pay the invoice owner the remaining amount. This is a very good financing solution as it involves minimal formalities.
Purchase order financing
This is one of the best financing solutions for small business owners because it does not increase its bank debt. Sales or production for small businesses is not much of a challenge. On the other hand, financing for raw materials or already ordered goods can be a challenge.
Purchasing order financing is a solution to this problem because you can fulfill your orders and make a profit at the same time without obtaining a bank loan.
Small business owners have had hard times when trying to obtain credit facilities from banks. With the above alternative finance solutions, access to funds will no longer be a problem. With flexible requirements and repayments, there is no reason why your business will not grow.
- Pros and Cons of Financing a Business
- Evaluating Financing Options for Your Business: Myths and Facts
- 12 Tips for Getting Your Bank Loan Approved
- Why You Can’t Get a Bank Loan for Your Small Business
- How to Raise Money to Start a Business (Part 2)