More often than not, the words ‘business finance’ are associated with negative connotations that make business owners shudder, but it shouldn’t be that way! It is true that business borrowing should always be carefully considered, but many entrepreneurs aren’t aware of just how helpful low-risk funding can be.
Previously, if a business needed funds it would be forced to turn to the bank for a traditional bank loan. Most of the time, business owners were met with stringent lending criteria and sky high interest rates that small businesses in particular simply couldn’t afford to take on.
However the rise of digital brought about an increase in the number of providers in the alternative finance market. This market reached £6.12 billion in 2017 and has been instrumental in increasing access to finance for businesses across the UK.
There are many reasons why you may need to finance your business. Perhaps you’re in the growth stage and looking to start your expansion plans. Or, perhaps, you suffer low periods of cash flow and want to boost your business’s working capital. Whatever the reason may be, it’s understandable to feel nervous about proceeding with a funding agreement. We’re here to talk you through why business funding may not be as risky as you think.
There Are Lots of Ways to Fund a Business
As mentioned, gone are the days when then only means of funding a business was through a traditional bank loan. Now, you have plenty of options available to you, some of which you may never have even heard of before! Within the alternative finance market, there are products that offer businesses low-risk funding. Some examples include:
- Invoice finance: With this type of funding you don’t need to worry about interest rates and repayment periods. You just have to sell invoices of your choice for a small fee. The invoice finance provider will then release the value of your invoice and take over responsibility for collecting payments from your clients.
- Merchant cash advance: A cash advance can be helpful if your business takes a lot of customer payments by debit or credit card. It works by advancing money on the amount your business is predicted to make on its future card sales. The best part about a merchant cash advance is its flexibility. With no fixed monthly repayments, the funds get repaid as a percentage of your earnings.
- Asset finance: with asset funding, businesses that use a large amount of equipment and machinery can either choose to:
- Borrow funds that are secured against assets that your business already owns
- Access new assets without buying outright, instead entering a rental agreement making small monthly payments
You Have to Be Approved for Funding
One of the biggest reasons why businesses shouldn’t fear funding is the fact that legitimat lenders still have somewhat strict requirements when it comes to approval. Whilst the alternative funding market has worked to level the playing field for smaller businesses, it’s always in the lenders’ best interest to ensure you will be able to comfortably make repayments.
The point is that unless you go through a loan shark, it’s unlikely that you’ll find yourself in a situation where you are out of your depth with repayments. For this reason, it’s important to make sure that you go through legitimate brokers and lenders. To make sure you don’t get scammed, look out for logos like Financial Conduct Authority approved to ensure legitimacy.
Professionals Can Help You Decide the Right Funding Route
With so many options now available, it can be difficult to know where to start. As a business owner, it’s likely that you’ll be busy, and may not have the time to put into going through the pros and cons of each funding product.
When it comes to making that final decision, you don’t want to get it wrong. For this reason, it can be sensible to use a business finance broker or financial adviser, who can take a look at your business in greater depth, and determine the right route for your firm.
Low Risks Don’t Always Mean Low Returns
When it comes to business funding, you want to keep the risks low. The last thing you want to do is get your business into a situation of spiralling debt. By considering alternative options, you’ll steer clear of hot water and quickly help your business boost its cash flow.
Whenever you take on funding, make sure you stay organised! Whatever product you choose, have a detailed plan laid out and if you are required to make monthly repayments, be sure to organise it so that they automatically leave your account each month on the due date.