If you are operating a business with a lack of cash flow, chances are there is money to be found if you know where to look for it. Many SMEs just aren’t aware of all the options available to them when it comes to finance and funding and this is exactly why so many are faced with insolvency. Instead of continuing on your current path, take a few moments to explore ways in which it is possible to obtain that extra influx of cash to meet your day to day expenses. This brief guide to finance and funding for your business in 2013 should help you see that cash flow doesn’t need to be a problem. You simply need to understand what is out there and how to go about cashing in on it.
Factoring and Invoice Discounting
By far the most common method of obtaining funding in today’s economy is factoring and invoice discounting. This is quite popular amongst small businesses because a loan is made to the company based on outstanding accounts receivable. The factor or discounter will take a look at your books to see exactly what is owed to your company and will lend an amount up to 85% of what is outstanding. Bear in mind that these must be B2B accounts (business to business) and not a ledger full of outstanding invoices to the general public. In factoring the lender will take over your accounts and collect payments where is in invoice discounting the business maintains control of their books.
Although trade finance is not optimal for all businesses, it can be a viable solution for those companies that meet certain criteria. For example, sometimes a trade financier will lend money over a short period of time to a business that has a solid history of meeting orders and the profit margin is relatively high. Perhaps there is not enough money to meet the current order so the lender is willing to make an advance against expected profit once the order is filled. Usually trade finance is sought when there is a lack of more conventional loans because of the current credit crunch where banks are holding tighter reins when lending.
Asset or Equity Finance
When a company is in need of a quick loan, asset or equity finance can be the ideal solution. Sometimes there is a slump in business due to unusual circumstances. Seasonal demand may be low or there could be other reasons why products are not moving at the moment. A lender will sometimes make a loan based on the value of merchandise ready to be sold. It should be noted that this particular type of financing is contingent upon the lender’s ability to see value in your products. This would not be a loan for the service industry as there has to be some tangible (equitable) goods to guarantee or secure the loan.
In recent years, business angels have become prominent in the world of finance. A great number of investors are out there looking for somewhere safer than the markets to place their investment capital. These are usually private individuals looking for a good return on their money who are willing to invest in viable businesses. They can be thought of as a type of silent partner in that they are usually not made directors of the company, but they inject much needed capital to keep the business trading. It will take a solid business model and proof that the company has the potential to show a profit, but there are an astounding number of investors out there willing to take a risk.
Depending on the industry, there are also government grants available which are intended to help stabilise and grow the economy. Certain industries are more apt to qualify for government grants such as construction and building enterprises. A good financial adviser will be able to help struggling businesses research grants available to them and this is money which may or may not need to be repaid. Often there is very low interest on those loans needing repayment so if you qualify this may be worth your time and effort to investigate.
Some Final Thoughts on Finances
Rather than struggling from day to day waiting for that first creditor to petition a winding up order, take the initiative to find finance and/or funding. If there simply seems to be no way to qualify for a loan, talk to an Insolvency Practitioner about keeping creditors at bay with a Company Voluntary Arrangement. No, this is not a loan but it may enable you to pay pennies on the pound towards outstanding debt. It is not the same thing as bringing in a quick influx of cash but it would certainly reduce your monthly repayments which in turn would free up money for day to day expenses. You can survive the current credit crunch so don’t give up just yet.