Financing is essential for any business growth, expansion, and sustainability. Deciding the best financing route can be challenging considering the numerous options available – from debt to equity, from loan to invoice financing. In this article, OptiPay will outline questions that will help you brainstorm and make an informed decision.
Before deciding on a funding route, ask yourself these business questions:
Why do you need financing?
Before raising capital, in any way, understand why you need it and what will your use of funds be. Do you need to invest in technology? Hire new staff? Increase production? Spend on advertising? Determine the total amount you need to scale your business and break the total amount into categories to better appreciate where your capital will go.
Understanding why you need financing and where the funds will be used will help you choose a financing route and make a good impression on your lender or financing service provider.
How is business?
Lenders or finance service providers will typically request proof that your business is profitable, has the potential to be profitable, or growing on a monthly basis. You may need to provide financial statements, tax returns and other relevant information that helps prove your business valuation and ensures the financing has minimal risk attached.
Before seeking funds, consider the health of your business and how you can improve it before seeking capital.
Do you have a strong credit history?
Some methods of financing will only be available to those with a strong credit score. Therefore, your credit history is an essential factor lenders take into consideration, whether it be for a business loan, personal loan or cash advancement.
What can you afford?
If you are deciding to take on debt, you must not bite off more than you can chew. Only borrow what you can comfortably pay off, there are unforeseen situations that may affect business (for example, a global pandemic!), so be weary with how much you borrow. Calculate your businesses cash flow and determine a comfortable monthly repayment amount.
Debt vs Equity?
Deciding between debt financing and equity financing depends on your business’s needs, long term goals and industry. To clarify the difference, debt financing involves borrowing money that must be repaid with interest, while equity financing involves selling ownership of the company, in the form of shares, to interested investors.
Now that you have a better understanding of your business’ current financial position and growth ambitions, let’s take a look at the financing options available to you.
Finance Option #1: Trade Finance
Trade Finance is a financing solution that focuses on helping businesses pay their suppliers. Trade Finance provides a line of credit that can be used to finance imports, exports, or local supplies. With this financing option, you don’t have to worry about how you’re going to pay for goods before you sell them.
Trade Finance is a flexible financing solution that is tailored to a company’s specific business needs, enabling them to better manage their cash flow and increase their operations without being held back because of cash flow restraints. Leveraging Trade Financing effectively and intelligently can give a company a competitive advantage, permitting it to increase it’s market share and secure new clients.
Finance Option #2: Invoice Finance
Invoice Finance is ideal for businesses that offer credit terms to their customers or need immediate, hassle free access to working capital. This financing solution lets you unlock the cash tied up in your unpaid invoices. A financial service provider will give you a certain amount of the invoice upfront and take on the risk of the invoice. Once the due date of the invoice occurs, the service provider will deduct their fees and provide you with the remaining capital of the invoice. The amount you will receive upfront varies – for example, our Invoice Finance solution can turn up to 90% of your outstanding invoices into cash within 24 hours.
One of the benefits of Invoice Finance is that it provides immediate access to cash flow, whilst not taking on any debt. This is money the business has already made but has not yet received. This quick financing solution can help businesses meet their obligations and scale their operations. It also eliminates the need to wait for customers to pay their invoices, reducing the risk of late payments or bad debt.
Finance Option #3: Inventory Finance
Inventory Finance can be a terrific financing option for businesses that need to fund the seasonal purchase of new stock. This solution provides a line of credit secured by your inventory stock, enabling you to pay for new stock and pay back your lender when you sell the product, providing a significant capital injection for your business.
This financing solution is beneficial in assisting businesses maintain an appropriate level of stock, enabling them to better manage their inventory during busy times and slow times. By enabling business owners to purchase stock they may not have otherwise been able to afford, it ensures you never miss a sale and provides the opportunity to build your market share.
Finance Option #4: Business Line of Credit
A Business Line of Credit is a line of credit that can be used to pay suppliers, sub-contractors, or other creditors. This financing solution offers flexible repayment periods tailored to suit your business’s cash cycle without the need for property security.
A Business Line of Credit provides immediate access to cash flow, which can help businesses meet their obligations and grow their operations. This financing solution provides you with a pool of capital where you can withdraw funds as you need, and you only have to pay interest on the amount you have withdrawn. The limit to your Business Line of Credit depends on your profitability and cash flow, and the line of credit usually has an expiry date.
A Business Line of Credit is often less expensive than other forms of financing, such as credit cards or loans, making it a cost-effective option for businesses who have strong foundations and only require capital to grow rapidly.
In conclusion, it takes money to make money. Choosing the right financing option for your business is crucial for success, so be sure to ask yourself the right questions and explore all available financing options before making a decision.
OptiPay offers a range of financing solutions designed to help businesses of all sizes and stages achieve their goals. Contact us today to learn more about how we can help your business thrive.
