Keeping an expanding business running in a tough financial climate
With an ever greater number of people self-employed, and many people and businesses already under significant financial strain, it can be difficult to grow your business without significant financial risk. Here are several ways to allow your business the room it needs to grow, and the pros and cons of each one as a funding option.
Apply for a Bank Loan
Taking out a loan is very often the first thing people turn to when they need a quick cash injection into their business. Typically you as a business owner, or on behalf of your company, will show the bank that your business is, and will continue to make money, stating the purpose of the loan. Between you/your company and the bank, terms will be agreed upon regarding the loan amount, repayment terms, and interest rates.
Pros – A loan gives a quick influx of money into your business when you need it.
Cons – Loans require you to have existing good credit, often have high interest rates and usually require assets as collateral which can place you or your business at significant risk.
Peer to Peer Lending
Peer to peer, or P2P, lending is essentially one individual lending a sum of money to another individual or business. It’s usually done through an intermediary, most often online. Amounts can vary from micro-loans to much larger amounts. Like most loans, they usually require some sort of collateral.
Pros – More accessible than traditional bank loans and will likely have a shorter application process. You may be able to get a lower interest rate if you go through the right channels.
Cons – Most peer to peer lending has a minimum and maximum loan amount which may be more or less than you wish to borrow. If you don’t find the right company, your interest rate may be excessive and you may incur processing fees on top of your interest.
Receivable finance is ideal for a situation in which you need to make up front payments in order to keep your business running, even when clients have yet to pay you. To resolve the problem, you can hand over unpaid accounts to a financier such as Octet (www.octet.com/receivables-finance/) in exchange a set amount of the money owed to you.
Pros – Doesn’t require additional collateral. As soon as your clients make payment, your financier is paid. Set fees as opposed to variable interest rates. Allows you to bridge financial gaps without incurring debt and will help your business maintain steady growth.
Cons – Though great for steadily growing businesses, it doesn’t always allow for rapid expansion. It’s also not ideal start-up companies without an existing client base.
If you’re still in the early days of your business, trying to keep up with monthly payments and still grow your business, look at some additional funding. Receivables finance is likely a safe option, particularly if you have yet to repay your startup capital.