What are the different funding options for your small business?

By Jake Martin

2 min read

If you need more business capital, there are many funding options available. From traditional lending to invoice financing, there’s a solution for you. Here are some popular and practical funding options to consider for your small business.

Whether you’re seeking to grow, diversify or improve the cash flow of your business, capital funding can be a lifeline. There are many ways you can get access to extra funds, depending on the amount you wish to borrow, the purpose of the funds and your available collateral.

Traditional line of credit

Banks and other financial institutions offer SMEs lines of credit to finance various projects and support business growth. The advantage of a traditional line of credit is a comprehensive market of lenders offering competitive rates and loan terms. This may give you the amount of funding you desire, a rate you are comfortable with and flexibility within the loan.

The downside is that traditional lenders usually require a form of security and guarantee for the loan. Depending on the amount of security, loan eligibility requirements and terms of the guarantee, this imposes restrictions and limits for some would-be borrowers, who might be better suited to alternative, non-traditional forms of finance.

Cash flow finance

The concept of cash flow or invoice financing is growing in popularity. Essentially, it works as an advance by the lender to the SME for the amount of an SME’s outstanding invoices. Once the SME receives payment for the invoice, the SME pays the lender a small percentage on the invoice amount as interest for the advance. Sometimes the lender even manages collection of invoice payments, to ensure a timely repayment from outstanding debtors.

Cash flow finance is ideal for SMEs that experience seasonal income and financial peaks and troughs. Having advance payments provides instant capital to the business so it can maintain its operations, while still meeting the demands of its creditors.

Another distinct advantage of cash flow financing is that the invoices themselves usually serve as security for the loan. This means that there are generally no rigorous eligibility requirements or credit checks.

QuickBooks Online can help you to track invoices and manage capital funds anywhere and anytime from your PC or portable device.

Shareholder investors

SME companies can benefit from shareholder investors. Shareholders can provide capital funding to the business in exchange for their share or shares in the company. They also have a vested interest in the success of the company and can receive dividends or profits based on the performance of the business. Intuit has worked alongside FlashFunders to devise a helpful tool when it comes to deciding how much investment capital you should accept and how much equity you should give up.

Shareholders can be anyone over 18, from family and friends to professional investors. Be sure to speak to a financial and legal advisor if you’re considering this route because share offerings need to be done with absolute care to ensure that the interests of existing shareholders are preserved.

It’s also helpful to have a prospectus or company brochure for marketing purposes. The prospectus should explain the business activities, the purpose and use of the required funding, profit projections and rights of shareholders.

With so many different funding options to choose from, you should consider the purpose and amount of funding needed, your credit history and eligibility, as well as any flexibility you require.

 

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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