For small and startup companies there are few more pressing concerns than cash flow. Finance is always required to keep the wheels of any enterprise in motion and when it seizes up the consequences can be damaging and even disasterous for small firms.
Here are 5 ways worth considering as routes to finance:
#1. Factoring and invoice discounting
Invoice factoring and discounting are very popular and widely-used means of accessing finance on the basis of work already done or services already provided. Both invoice factoring and discounting are simple and straightforward processes, allowing companies to leverage their invoices to raise cash and, in effect, find a way to get paid earlier than they otherwise would.
The precise nature of an invoice factoring or discounting arrangement will depend on a number of different factors and it’s very important to get the right advice and be clear on the key issues before taking up the option. But, when cash flow is becoming a real concern and is hindering your progress as a startup then both routes to finance can be of considerable benefit.
#2. Company growth loans
Company growth loans are designed to support small businesses that need funding to develop and grow their operations. They are not typically easy to access and application criteria can be very stringent. However, with the right business plan and some bright ideas, startup companies can access growth loans and secure the cash flow boost they need.
#3. Asset refinance
With banks and traditional routes to finance drying up as a means of securing loans, a growing number of businesses are finding ways to leverage any assets they have to raise cash. Ideally, using assets to access loans would not be necessary but when it is, the option can provide much-needed and highly valuable flexibility.
Quite what a company can put up as collateral in order to secure a loan depends on the nature of their work and their business but typically it will need to be valuable hardware such as suites of computers or fleets of trucks or cars.
The option has particular appeal for companies who are facing serious cash flow problems but which have large amounts of capital tied up in expensive assets that they own. Refinancing in this context means that a company effectively sells ownership of some of its assets in order to create a cash injection. The assets themselves are then leased back and therefore retained as operating tools.
#4. Asset finance
Asset finance also involves leasing but rather than generating cash for a business, it potentially frees up funds by allowing assets to be paid for in instalments over an extended period of time. The process allows small companies to target growth in key areas by affording them access to tools or technologies that might really make a difference but which might otherwise be unaffordable.
There are two commonly used asset finance options:
- The first involves a company paying an agreed amount to lease vehicles or an item of machinery for a set period of time before handing it back to the owner.
- The second is essentially a form of hire purchase whereby a business pays for the items or the equipment it needs in instalments before ultimately taking ownership.
#5. Bridging finance
The basic principle of bridging finance is to provide companies with money they need on a short-term basis in order to carry them over to a point in the future.
A typical scenario in which bridging loans can be really useful would be when a company is waiting to receive the proceeds from the sale of a property but needs to move into new premises immediately. So it is about bridging and overcoming shortfalls in finance rather than finding a longer term solution to more underlying cash flow concerns.
Cash flow headaches can cripple and potentially bring down a business even when it has strong underpinnings and real assets but it needn’t always be the case. It is vital to clarify the details of any finance deal agreed at any time but, with the right advice, small and startup companies should have nothing to fear and a good deal to gain from the options outlined above.
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