When money is tight, where will you turn? All too often, business owners believe that a bank loan or business credit card is the only option, which can lead to high interest rates and strict repayment plans. Thankfully, there are more flexible financing solutions, if you know where to look.
Here are some of the different forms of business lending available. Knowing these options allows you to adapt to a changing marketplace without putting your company at risk.
How Business Lending can Smooth out Cash Flow Problems
At its core, cash flow is a relatively simple concept. All you have to do to measure your cash flow is to compare the amount of money coming into the business against the money going out. If you are earning more than you are spending, you have a positive cash flow. Unfortunately, if your expenses are higher than your income, your flow is negative.
One critical point to remember is that negative cash flow is not always a problem. In some cases, it may be necessary to help your business thrive. For example, if you have a run-down storefront, borrowing funds to fix it up will boost your brand’s image, increasing sales.
Overall, a crucial skill is understanding the difference between a cost and an investment. While rent and utilities can be considered costs, purchasing inventory is an investment. Anything that helps your bottom line is valuable, even if it disrupts your cash flow.
That is the mentality to have when looking at business lending. Instead of focusing on having a negative cash flow, pay attention to the benefits you can receive later on, then focus on activities now that will generate tomorrow’s income. Making smart investments now will pay off in the future.
Here is a quick overview of the types of business financing available. This way, you can determine the right option for your specific needs.
Factoring
If you run a business that uses invoicing for most of your clients, factoring may be a viable solution to cash flow problems. One common issue with invoices is that customers may take too long to pay them. If you offer extended repayment terms (i.e., 60 or 90 days), you could be waiting for months to receive funds. For B2B businesses with individual accounts payable holding back significant funds, factoring can be a great way to open up that cash flow now.
When you work with a factoring company, you can receive outstanding balances upfront. The factor will pay you up to 80 percent of the invoice immediately and then issue the remaining funds once the client pays (minus a fee). Best of all, there’s no credit check, and you can factor as few or as many invoices as you like.
Real Estate Loans
Purchasing property for your business can be prohibitively expensive. Chances are that you don’t have the funds necessary to pay for a building upfront, so you will have to borrow. Unfortunately, banks are wary about lending money for real estate purchases, so it can be hard to get approved.
With a real estate loan, you work with a lender who specializes in this industry. These loans can be used for new acquisitions, construction and renovations. Best of all, they can come with flexible repayment terms, and many of them can turn into long-term financing to reduce your monthly costs.
Hard Money Loans
One of the biggest issues when working with a bank is that they have strict approval processes. In most cases, you’ll have to wait for weeks to get financed, and the loan is rarely favorable for your business.
Hard money loans, however, offer much more flexibility. Since you’re working with a private investor, you don’t have to worry about lengthy credit checks or applications. These loans can come with steep interest, however, so they don’t work for all situations. Usually, hard money is best utilized when investing in real estate.
Equipment Leasing and Financing
If your business relies on expensive machinery, you may not want to take out a loan to purchase it. Instead, it may make sense to lease equipment that will lose value over time. Equipment loans are easier to obtain because the item acts as collateral. In most cases, you can up to 80 or 90 percent of the price upfront.
SBA Loans
The Small Business Administration helps companies like yours secure financing when banks don’t approve a loan. While the SBA does not issue funds directly, it guarantees the loan, making you less of a risk. There are multiple SBA loan options, so you can find the right one to fit your needs.
Lines of Credit
In some cases, a loan is not the best financing option. When you are unsure how much money you need, it can be better to open a credit line. These accounts can be revolving (similar to a credit card) or fixed. Usually, a credit line has to be secured, meaning that you provide collateral. Unsecured credit is also available, but it is much harder to obtain.
Why You Should Use a Commercial Broker
Each of these business lending options works in a specific situation. Rather than doing all the research yourself, a commercial loan broker can handle all of the details. Best of all, brokers build relationships with many different lenders, so you can access funds that would otherwise be unobtainable.
Contact Us Today
If you are ready to manage your business finances the right way, give us a call. We can work with you to find the best loan option so that you can manage through these uncertain times.
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