Credit is an essential part of running a business for most companies. It is credit that allows them to keep going in tough time, ensure they have enough stock and enable them to invest in future growth, so it really is very important. Of course, knowing which sources of credit are best for their needs and which should be avoided is often very difficult for the average business. That’s why I’ve put together a list of some of the most common source of credit, and how they might be useful, below:
Term loans are probably the most common types of loans used by businesses of all sizes. These are loans which need to be repaid over a fixed term. You can find these kinds so loans from your bank or an unsecured loans direct lender depending on how much you need and what your circumstances are, and they are ideal for purchasing assets that will help your business grow, such as vital equipment.
Lines of Credit
Lines of credit are agreements that businesses have with their banks or building societies, whereby a pool of money is made available and can be accessed by the business as and when needed. Basically, a line of credit is a recurring account, so that once you’ve paid back what you’ve borrowed, you can take it out and use it again. This kind of business financing is perfect for covering short-term costs like payroll and inventory, but you should be aware that interest on these kinds of accounts is usually variable and businesses almost always have to put up some form of collateral to get the best rates.
If your business struggles with cash-flow, invoice finance can help you release money tied up in outstanding invoices. The lender can even manage the collection of payment from your customers or you can handle this yourself.
Merchant Cash Advances
MCA’s are a fairly new form of business lending that allow a business to borrow money against their future sales that go through a card terminal. This type of financing is ideal for businesses that take a lot of their revenue through card sales. You can compare quotes for merchant cash advances here.
A lot of lenders offer unique financing options called asset finance that businesses can use for buying equipment like machinery, vans and other large, but essential purchases. Sometimes these will be made available in a similar form to short term loans, and sometimes they will be more like lines of credit, but they are very useful to companies that require expensive equipment because they tend to be a lot more flexible than other loans and often don’t even require a deposit, which means that you can get the equipment you need exactly when you need it.
Business Credit Cards
Many businesses who have difficulty obtaining credit from banks and building societies rely on business credit cards, which tend to have a looser criteria for acceptance, and although they are ideal for making regular purchases, and for helping to structure cash flow via their monthly billing cycle, they can be a much more dangerous prospect due to the, usually higher interest rates they command. If, however, you are confident that you can pay at least the minimum each month, they will help you to build up a strong credit history for your business, which will open up more doors and enable you to gain access to better forms of credit such as term loans, in the long term. Many business credit cards also offer points and air miles, which could help you cut your company’s running costs so that they can be pretty useful.
Of course, not all of the credit options available to the average business mean getting into debt. If, for example, you choose to go down the equity financing route, instead of taking out debts, you will sell a share in your business to an investor or a group of investors. They will give you the cash you need to grow your business in return for with they hope will be a significant return. This could be a good route to go down if your work in a high potential, high growth industry like biotechnology or software development.
As well as getting the cash you need to advance your company equity financing can also provide you with the much-needed advice and expertise of your investors, not to mention introductions to other people in the industry who could help your business to do more and be better. The only downside is that any investors who back you might want to get more involved with your business day to day, so it really is a matter of weighing up the pros and cons.
Finally, if you’re looking for the cash to start your own business and you have a good idea that appeals to the masses, setting up a profile on a crowdfunding site and asking the general public to back you is a great way to get the cash you need to start-up without getting into debt.
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