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[F205]Finance And Business Law

by Mary Bush, Mar

There are plenty of different ways to finance your business needs, whatever they may be, and plenty of companies to turn to. Such choices include lease financing, commercial credit lines, commercial mortgage loans and public share offerings. You might want to get a larger premises for your company, buy new equipment, recruit more staff or cover the costs of company expansion. You will have several financing options available to choose from. Being able to select from a variety of financial sources can save you time as well as money and help you to reach your business goals quicker.
These are some tips on how to find the best finance option:
What is the Purpose of the Loan?
Sometimes the reason for the loan tells you the best way of getting it. If you want to buy a new premises, a commercial mortgage will probably be the most advantageous option. Saying that, there are many types of commercial mortgage to choose from and you should check out as many as you have time to, before deciding on the one you want.
Be Open-Minded
Don't be afraid to check out several types of finance. You might want to buy new equipment but research might indicate that hire purchase is your best choice for the moment. Keep an open mind so you don't overlook any possibilities to improve your business.
Compare the Costs of Different Options
Financing your business will involve costs. These costs are often proportionate to the benefits to the business. The cost might be setup fees, managerial fees or interest payments. You should compare various avenues and their costs to find the best one for your business.
Take into Account the Drawbacks
Every method of financing has its own drawbacks. If you opt for a share offering, you might have to relinquish some of your control over company decisions. A commercial mortgage requiring a large down payment might tie up most of your capital which you could be using for other elements of your business. Think everything through carefully before deciding anything.
Time
Do you need the money soon or could it wait a while? Some options can be arranged fast and others need more time. Overdraft protection and lines of credit can be arranged immediately or might only take a few days. The faster types of credit will usually cost you more though so it might be worth waiting if you can.
How Much is Necessary?
If you need a lot of money, this might limit your financing options. If you want to buy something straightaway, you might choose a bank overdraft if you will be able to repay it relatively soon. If you want to buy major equipment, a finance lease agreement or secured loan will probably be more suitable.

Angel investors and venture capitalists, although more generous than banks, only provide capital if you are willing to give them an ownership stake in your company. Usually a big one too. Banks don't demand an ownership stake. Instead, they will only lend you money if your company can show a three-year track record of profitability and if your personal credit record is spotless.

But, what if you don't want to give up ownership and if you don't meet banking requirements?

There is an option that is growing in popularity – and it provides you with easy to obtain financing. It's called accounts receivable factoring. Factoring is an ideal tool for companies whose biggest challenge is that they cannot afford to wait 30 to 60 days to get paid by customers. By factoring your receivables, you can get paid in as little as two days. This helps business owners to easily meet ongoing obligations such as payroll and rent, and allows them to grow the business. In effect it eliminates the uncertainty of when you'll be paid and allows you to streamline your cash flow.

Receivables factoring is very different than a business loan or line of credit. Rather than focusing on physical collateral (real estate, equipment, etc.) like banks do, factoring companies focus on your invoices. Are they from good credit worthy clients? Do they pay reliably on 30, 60 or 90 days? If they do, you have a good change of qualifying for invoice factoring.

Accounts receivable factoring is very easy to implement and works as follows:

1. Your company delivers the goods or services to the client
2. You invoice your client and send a copy of the invoice to the factoring company
3. The factoring company advances you between 70% and 90% of the invoice as the first installment
4. Once the invoice is actually paid, the factoring company advances you the remaining 10% to 30% as a second installment, less a small fee

Factoring financing is a great alternative to bank financing and venture capital that is easily available to small and medium sized businesses.

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About Author

Both Mary Bush & Marco Terry are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Mary Bush has sinced written about articles on various topics from SEO Articles, Finances and Finances.