We’ve fielded a lot of queries lately about the financing options available to small businesses. From these interactions it’s evident that there are a few avenues that are either unknown or underappreciated by some small business owners.
To clear the air and open a few eyes to the options available, here are 3 financing alternatives that might suit your business.
If it’s equipment that your business needs capital for, then consider leasing instead of purchasing outright. Avoiding the large capital outlay of buying equipment outright means there’s no need to take on a burdensome loan and smoothes the cash payments over a more manageable and predictable cycle.
Of course there are significant accounting differences and lease terms to consider too, so it’s important to discuss the decision and implications of leasing with your financial advisor, but it can be a very cash flow efficient way of financing equipment so it’s well worth a look.
“Cash flow is the life blood of small businesses and a big, lumpy capital expense can be devastating to funding day to day operations. Leasing or renting equipment is one way around this,” Kochie says, “But make sure you discuss it with your accountant first to see if it’s suitable for you.”
Most businesses issue invoices on 30 day terms, which means it might be up to 60 days before they actually see the cash in their account. All the while bills keep rolling in and staff still need to be paid.
Debtor financing is one way to overcome this by providing a flexible line of credit based on outstanding invoices. The cost is usually an interest rate charged on the borrowed balance and in return the bank will allow a business to access up to 90% of the value of their outstanding invoices.
This smoothes out cash flows by providing payments as and when invoices are issued, and means that as the business grows so does the financing facility.
In some cases the bank can even take over the whole accounts receivable function.
“People can use the money up-front to reinvest in the business,” debtor finance specialist Rob Lamers advises, “But for some businesses it’s more about not having the time do the collection, so we put in place the structures and procedures for them.”
Obviously hitting up stock markets is out of the reach of most small businesses, but tapping shareholders or angel investors for capital can be a viable alternative to borrowing from the bank.
In today’s exciting start up environment, there are angel investors about willing to consider taking an interest in small business ventures with potential. But remember, investors don’t just sit there and throw out money because something sounds like a great idea, they want the full business case.
As our resident start up expert Mat Beeche says, “The fact of the matter is there is more money out there than you realise, you just need to convince investors that you are ready for it.”
We'd love your hear your story of expansion and how you've financed it, so please jump over to the KBB Facebook Forum and tell us about it now!