Access to finance can sometimes be the difference between a business thriving and a business closing its doors for the last time. For SME’s especially, accessing funding in the extremely competitive business industry can be a huge challenge.
Some businesses decide that they need extra capital to achieve their growth plans, whilst other entrepreneurs realise that they need start-up funds to get the ball rolling entirely. Whatever the reason, obtaining the right funds to meet business requirements can be a massively daunting task.
But, whilst it is sometimes difficult for businesses to access finance, it is certainly not beyond the realms of possibility and there are numerous approaches SME’s can utilise.
1. Invoice Finance
Invoice finance is the term used for asset-based lending products and it is a fantastic way for SME’s to access money that is “pending” – by this we mean that businesses can access money that is otherwise tied up in unpaid invoices.
On average, invoices are paid a whole 74 days after being issued, so it is not surprising that invoice finance is such an important tool for businesses. With this type of product, businesses are able to get immediate access to funds that are due, rather than having to wait for their customers to pay up.
There are two types of invoice finance available – factoring and discounting. Invoice factoring means that the finance provider takes full responsibility for the sales ledger management process, which includes payment collection. Invoice discounting is a similar product, but the business itself is in control of chasing up unpaid invoices and manage the sales ledger management process independently.
Opting for invoice factoring means they can delegate the difficult parts to experts whilst they focus their energies on making the business bigger and better where as discounting is lighter touch, can be confidential and allows the client to retain their relationships with their own customers.
2. Property Finance
Amongst the various types of finance available, property finance or a secured loan is a great way for businesses to get access to essential funds. It is a secured business loan, typically with either residential property, commercial property or a property portfolio being used as collateral.
There are a few options available to businesses and at Nucleus Commercial Finance, we have three property finance products available. The first is a bridging loan – this is a brilliant short-term option that businesses use when they have a solid plan in place for financing but are in desperate need of access to finances now, hence “bridging the gap.”
We also offer first and second charge term loans. This type of finance is a secured business loan that uses a portion of the equity of a borrower’s home as security.
3. Business Overdraft
A business overdraft essentially comes into play when a business withdraws an amount greater than the balance it currently has in the bank. Sometimes in business, you have to spend money to make money, so this product is particularly popular as it gives businesses the ability to be flexible with their cashflow.
Business overdrafts are often fundamental to SME’s thriving and at times, even just surviving. Whilst not all businesses who have an overdraft facility use them, or at least regularly, they are an essential safety net to have in place, should the need arise.
4. Asset Finance
For businesses that are struggling to find working capital, asset finance is an ideal solution. In many industries, having the latest machinery or equipment is essential, but this is not always possible for businesses that are going through a difficult patch.
This is where asset finance comes in… Hugely different from other types of finance, asset finance is a type of funding where the finance itself it secured against the asset being purchased.
There are different types of asset finance too, including:
* Operating lease
* Hire purchase
* Full-payout lease
Asset finance is hugely popular, with around one in three small businesses opting to use it. What makes it such an attractive option is that the costs are well structured. Asset finance is a stable, predictable form of finance that allows businesses to continue with their every-day-operations, without having to raid the bank.
Each of these finance products are a brilliant way for businesses to establish a concrete financial base. Before applying for finance, it is important to put together a plan to forecast how much is required and whether the payment plan is realistic when taking into account cash flow forecasts.