Article Contributed by Conrad Ford
Business overdrafts will always have a role to play in the financial workings of small and start-up companies in every conceivable sector. These days though, banks are far less willing than they once were to open up these facilities to even the most viable and reliable of fledgling companies.
Thankfully, alternative funding options are increasingly being made available in response to the need among small businesses for a greater measure of financial flexibility. Here are 4 such options well worth considering if your company needs to boost its cash flow but cannot access an overdraft facility:
1 – Asset refinancing
If you’ve invested in or managed to acquire equipment of any sort that carries considerable value then cash flow problems can be particularly frustrating and tough to bear. By refinancing these assets, your company can free up cash in the short term by effectively selling their ownership and agreeing to hire them back at a pre-determined price. Quite what assets you might refinance will depend on your line of operations but could include, for example, a fleet of vehicles, an item of heavy machinery or an area of office space.
2 – Factoring and invoice discounting
One asset that is often overlooked by small businesses but which can now be leveraged in a variety of ways to raise cash quickly is a company’s sales book. The processes of invoice factoring and discounting are both growing in prevalence and popularity as a means through which small companies can effectively sell their invoices to third parties and access cash upfront without having to wait for clients to pay in full. The terms involved in these kind of scenarios vary a great deal but the process of selling invoices is already helping hundreds of businesses raise funds quickly when they have an urgent need to do so.
3 – Revenue loans
Banks have become more reluctant to extent lines of credit or loans to small businesses in many different parts of the world in recent years. One solution to emerge in response to that situation in the context of retailing in particular is revenue loans, which are created in a way that means they’re paid back in line with income on a monthly basis. For many small companies, these terms help create a crucial degree of financial flexibility and keep repayments from becoming routinely burdensome.
4 – Crowdfunding
Crowdfunding has been one of the more remarkable small business financing developments to have emerged in recent years and its potential is still far from being fully realised. Already the phenomena, along with peer-to-peer lending, is helping hundreds of small businesses around the world raise funds online in ways that simply weren’t possible only a few years ago. Crowdfunding won’t work for every type of business but there is certainly scope for many thousands more small companies to generate cash through online platforms and based on the strength of their appeal to low-equity investor communities.
Every developed economy needs its small business sector to thrive and access to finance will always play a big hand in making that happen. So even where banks have retreated from the small business and start-up sector, there is plenty of optimism and certainly a growing sense that alternative options are available and on the rise.
About the Author
Conrad Ford is the founder of Funding Options, which provides a range of online tools to help firms and their trusted advisers to manage funding and cash flow.