How your business can access capital quickly
Despite their importance to the economy, small businesses often have a very difficult time securing the funding they need. This means their owners need to be more resourceful when it comes to financing their businesses and may need to explore alternative sources of funding.
Only 20 per cent of small businesses are successful in their bank loan applications. However, there are alternative ways to get money for your business quickly. This article aims to highlight some of these ways.
Secured business loans
Secured business loans are often the easiest to get approved. In this type of loan, the lender takes a security interest in a valuable asset that you or your business may have. If you default on your loan, the lender will seize this asset and sell it to recover their money.
This type of loan, which could be an SME loan, allows the lender to assume less risk, meaning they might be more willing to lend you money at a better interest rate. However, it also means you are at risk of losing your asset. Think carefully about whether you can actually afford to pay off this type of loan.
Business overdrafts
These are a type of credit that allow you to overdraw your business account to a certain amount. You must pay interest on the amount you use, but it can be repaid at any time.
However, keep in mind that overdrafts come with high interest rates and fees, hence they are often used as emergency loans. Be sure to plan your repayments and be very careful with how much you borrow, since this type of lending can be the most expensive on the market.
Business credit cards
Business credit cards can be a convenient way to get money quickly. You can use these credit cards to pay for any business expenses and you only pay interest on the balance you carry from month to month.
However, much like business overdrafts, business credit cards often come with high interest rates and fees. Ensure that you can pay off the balance as quickly as possible to avoid getting into a debt spiral.
Merchant cash advances
A merchant cash advance is a quick way to get money in which a lender provides you with an upfront sum of cash in exchange for a percentage of your future credit or debit card sales.
This can be expensive as the fees and interest rates can be very high and the repayment terms can be complicated. If you decide to get a merchant cash advance, read the terms and conditions carefully before you sign up.
Crowdfunding
Crowdfunding involves asking for small contributions from a large number of people, often through online platforms such as Kickstarter, Indiegogo or GoFundMe. It has grown in popularity in recent years and is now a common way to fund a startup.
There are several types of crowdfunding, including:
- Rewards-based crowdfunding: donors receive a reward in exchange for their contribution. This is great for businesses that have a unique or compelling product that want to raise smaller amounts of money quickly.
- Equity crowdfunding: donors receive a share of the business in exchange for their contribution. This is a good option for businesses that are looking to raise larger amounts of money
Invoice financing
Invoice financing (also known as factoring) is when businesses sell their outstanding invoices to a third-party lender. The lender advances a percentage of the invoice amount and the payment is collected from the borrower’s customers.
This can be a quick way to get money if your business has a lot of outstanding invoices. However, this service usually comes with heavy fees. It also means that your business will briefly lose control of your collection process.
Government grants
The government gives grants and loans to small businesses, especially those that have climate-friendly practices. These grants or loans give your business a quick injection of money, but the best part is they often come with low interest rates or are interest-free.
The only major downside is that government grants and loans tend to come with long application processes and strict eligibility requirements.
