Is your business being held back by inadequate access to working capital? Lack of funds can be frustrating when you know that you are ready for bigger and better things, but there are plenty of options available to you. Let's take a look at the top five.
1. Business loans
Business loans are a flexible form of finance suitable for a variety of purposes, including asset acquisition and provision of working capital. They also come in a number of formats – e.g. fixed sum upfront, overdraft facility, line of credit, commercial hire-purchase, chattel mortgage – with different terms. Your broker can advise on the most suitable option for the purpose you have in mind.
Before applying for a loan you'll need up-to-date financial and cash flow statements, as well as forecasts and a business plan. These will help you to set priorities, and are required by most lenders.
2. Business credit cards
Credit cards offer a convenient revolving line of credit. You can take advantage of up to 55 interest-free days on business expense payments by repaying the full balance every month. Supplementary cards can be allocated to trusted employees. Card issuers often provide expense analysis tools and easy transfer of information to popular accounting software.
Many business credit cards offer rewards or frequent flyer points, plus a range of business-oriented complimentary benefits like travel insurance, airport lounge access and even free flights.
The downsides are annual fees, and high interest rates if you carry a balance beyond the interest-free period.
3. Customer finance
The most satisfying working capital increase is generated by higher revenue. And one of the best ways to lift revenue is to offer your customers finance options instead of asking them to pay cash.
It could be something as simple as accepting credit card payments, or becoming an affiliated merchant with a Buy Now Pay Later (BNPL) service like Afterpay or Zip. Or you could partner with a more traditional finance provider to offer your customers a finance plan to pay by instalments for large purchases. Most forms of customer finance involve payment of a fee by you, the merchant.
4. Invoice financing – factoring and discounting
Invoice factoring effectively involves selling your debtors ledger. Your total ledger, or individual large invoices, are sold to a finance provider, who advances to you a large portion (e.g. 80%) of the amount owed by customers. The lender collects the debts on your behalf, and then pays you the balance of the invoice amount, minus a fee.
Invoice discounting operates similarly, except that in this case your debtors ledger acts as security for a loan, and the responsibility for collecting debts remains with you.
5. Private investors
Finally, consider equity financing if you are prepared to share control of your business. Your investor could be:
A family member or friend
A wealthy individual
An angel investment or venture capital syndicate
You’ll need the same kind of documentation to persuade an investor as you would for debt finance: financial statements, a business plan, purpose for funds raised, and – in this case – a convincing sales pitch.