Easy funding solutions may sound like a fantasy, but there are a variety of options available for businesses.
It is important to understand as much as you can about any funding option before you apply to avoid unexpected costs and delays. However, choosing the right funding option for your business should not be an overwhelming task. Not all funding solutions require collateral or great credit history, so don’t assume your business is not eligible based on those criteria. The following are three easy funding solutions for which your business may qualify.
1 – Loans
Loans are one of the most familiar funding options available for businesses. They are paid out in a lump sum and repaid within a fixed amount of time with a set interest rate. Your eligibility for a loan depends on a multitude of factors. The length of time your business has been in operation and the monthly revenue amount are two of the most important criteria.
To increase your chances of approval, develop a business plan so that the lender understands what the money’s for and how you intend to pay the loan back. Gather relevant financial data, and explain the key points of your business:
- Legal structure
- Description of products and services
- Marketing strategy
- Management structure
Keep the interest rate in mind when applying for a business loan. This is what is meant by the “cost” of a loan. The lower the interest rate and the more quickly you are able to pay off the loan, the lower the cost of the loan.
2 – Lines of Credit
A line of credit is generally a little easier to qualify for than a loan. A credit line is similar to a credit card in that you have a set amount available and use as much as you need. As you make payments, the available credit replenishes. As with credit cards, if you pay off the balance every month, you can avoid paying interest. Your business can use the funds for any purpose, and the funds are available whenever you need them.
Unlike with lump-sum loans, you take out only the amount of money that you need and pay interest on that amount until it is paid back in full. This funding solution generally involves smaller amounts than traditional loans and is better for regular small purchases or as a source of emergency funds. You are not charged interest on the funds until you withdraw or spend them.
3 – Factoring
Factoring is the process of selling your unpaid invoices to a third party. The third-party pays you a large portion of the unpaid total and collects the payments. The advanced portion is usually between 70% and 85%. When they receive the payments, they send your business the rest of the amount minus the fee they charge for this service. Although these fees can be more expensive than the interest rate on a traditional loan, businesses with poor credit or a lack of collateral often find invoice factoring ideal because eligibility for this service generally depends on how many invoices you send out, your relationship with your customers, and the perceived risk level associated with collecting payments from your particular customers. The more customers you invoice, the more likely you are to qualify for factoring. Some companies, however, offer spot factoring, which means that your business only sells one or a few invoices at a time.
Keep in mind that if you use this service, your customers will have to deal with the servicing company rather than directly with your business. For this reason, it is important to choose a factoring service that will treat your customers respectfully.
This funding solution is generally a good idea for companies that suffer from a lag between the time invoices are sent and payments are received. This gap is common among businesses that allow customers an extended period in which to pay their invoices. The portion of the total amounts receivable that the factoring service pays your business ahead of time helps stem cash flow problems and keep your business’s finances stable. This allows your business to run smoothly and the chance to take advantage of time-sensitive offers.
Some companies offer non-recourse factoring. This means that they take on the liability associated with the invoices. If a customer does not pay, your business does not have to repay the amount that was paid to you upfront.
4 – Revenue Advances
Revenue advance financing is different from traditional bank loans in that it easily integrates into your company’s day-to-day receivables. It’s a simple method for your company to receive the cash it requires without having to go through the aggravating bank loan application process.
Revenue advances enable you to sell a discounted portion of your future receivables. We collect our fixed percentage back over a non-fixed term of time until the purchase amount is received. Revenue advances are a quick alternative to the time-consuming and document-intensive application process for a typical bank loan.