According to the Small Business Association, only 33% of businesses last for over 10 years. The main reason they fail is due to cash flow problems.
Mounting expenses, decreasing profits, and unforeseen problems can all add up to spell disaster for small businesses. So, if you want your business to thrive and grow, you need to think beyond day-to-day operational costs.
It’s also important to secure additional funds for growth or unexpected expenses. The first step toward figuring out how to find the best financing option is getting to know what’s available.
Some of these options may differ from state to state, so commercial loans in Florida may look a little different than in New York. This is due to varying bank regulations. So, checking with your local bank to see your options available is always important.
Keep reading to explore the most flexible funding options available for businesses today.
What Is Flexible Financing?
Flexibility isn’t usually a term that’s associated with loans. That’s because most financiers and banks insist on monthly payback terms and amounts.
When you’re dealing with the ups and downs of trying to expand your small business, not to mention the uncertainties of a worldwide pandemic, these terms might not suit you.
Unlike conventional loans, flexible finance options allow you to work according to a repayment schedule that’s tailored to your circumstances.
Funding Options for Flexible Repayments
Whether you want to gain working capital or deal with unexpected expenses, flexible financing is an effective way to make sure your business keeps ticking over for longer.
These are the types of funding that you should consider:
Equipment Financing
Equipment financing is an easy way to enhance your financing plan by unlocking working capital.
You can use this type of financing to buy the equipment you need to grow your business or for buying extra manufacturing machinery. You can also use it to cover upgrades to your cybersecurity to protect your business from the risks of remote work.
Unfortunately, these loans do have regular repayment terms, but you benefit from flexibility regarding how you spend the money. Interest rates vary and you might need to pay monthly account management fees too.
Another thing to consider is the possibility of compulsory credit insurance. Make sure you’re aware of all the costs involved before you sign your equipment loan agreement.
Accounts Receivable Financing
Do you have clients that are struggling to pay what they owe you? AR financing can help you meet your payroll commitments while you wait for them to settle these outstanding amounts.
What Is AR Financing?
Accounts receivable financing is a type of asset-based financing. The lender will typically give you an amount equal to 100% of the money that’s owed to you.
These unpaid invoices serve as collateral for the loan. You’ll pay a small fee for every week it takes your customers to pay back the amount owing in full. You don’t need to pay anything extra.
The approval requirements are flexible, and this type of financing is similar to a line of credit, without rigid limits. You don’t need a good credit score to qualify for these types of loans or have a long business history.
If you’ve been in business for over six months and you can prove that your customers usually settle their bills, you shouldn’t have a problem getting this type of funding.
There are three main types of AR financing:
Asset-Based Lending (ABL)
This is an on-balance sheet technique that attracts significant fees. ABL’s also known as traditional commercial lending or business line of credit.
You’ll have limited flexibility about which receivables you commit to the loan.
Traditional Factoring
If you opt for factoring, you sell your accounts receivable to a funder. With this type of finance, you might only receive around 80 percent of the money owed by your customers in return.
You’ll also need to pay a small processing fee. This type of loan offers more flexibility than ABL, as you can decide which receivables to trade in return for cash.
Selective Receivables Finance
This type of funding lets you choose which receivable you want to advance for pre-payment. Financing rates are lower for this type of loan.
This method also doesn’t count as debt since it isn’t recorded on your company balance sheet.
Accounts receivable financing also helps you add to your team of employees without increasing your overheads. It lets you pay your suppliers on time and invest in the growth of your business faster.
Merchant Cash Advance
An MCA is a lump sum of cash that you repay as you earn money. In this sense, it works like a payday loan for individuals. You pay back the loan from your future earnings, either daily or weekly.
This is an expensive funding option, but it could work well for you if you need cash fast and you can afford the hefty fees.
Read your contract carefully before you commit to this type of loan, so you know exactly how much you’ll need to repay.
Line of Credit
You can get a line of credit from an online lender or a bank. These types of financing plans give you flexibility when it comes to drawing capital and paying it back.
Lines of credit for businesses work like credit cards do for individuals and interest rates are high.
You don’t need to commit to repaying the full amount if you don’t spend it, and you only pay interest on the amount of money you use
Grow Your Business
Often, all a small business needs is a little help to keep going when challenges arise. These funding options can mean the difference between overcoming the next hurdle you encounter in business or closing your doors for good.
Don’t allow your business to become another statistic, rather consider these flexible financing options to help you take the next step forward.
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