When maintaining a good level of working capital becomes a challenge, there are several finance options available for today’s small and medium enterprises (SMEs). In this blog post, we’ll explore two options; Business loans and Invoice finance.

Business loans

All businesses will consider taking out a business loan at some point. This isn’t necessarily a sign of an unsuccessful or struggling business as loans are essential for growth; if you can fund all your business’s growth activities through business savings, you’re probably not using your business’s assets to their full effect.

Traditional lenders, such as banks, are usually the ones offering business loans. As a result, securing a business loan is often a long and tedious process. It may take you several weeks to secure a loan and you’ll have to satisfy stringent criteria such as sufficient collateral and long credit history.

In the wake of the Royal Commission into banking, it’s even harder for businesses, especially small businesses, to secure a loan from a traditional lender.

If you’re thinking of applying for a business loan, you should be aware that:

  • interest rates can be very high for SMEs
  • banks may be unwilling to lend enough to satisfy your needs
  • you may be locked into a lengthy contact even if you only need extra cash for a short period
  • your application may be rejected even if you match the lender’s acceptable risk profile if the lender has met its loan quota

As such, a business loan may be suitable for your business if you need a long term loan to finance business growth or investments and you have plenty of collateral and good credit history. If you’re seeking a short term loan to help with cash flow challenges, you may find a business loan too costly and inflexible.


Invoice finance

Invoice finance is usually a more appropriate finance option if you need additional funds in the short term. It can enable you to convert unpaid invoices into working capital instead of increasing your financial liabilities.

Invoice finance doesn’t commit you to a high-interest loan for an extended period and the fees are much lower too. Because invoice finance releases funds you’re owing rather than securing new funds that you have to repay, this method can be a much lower risk option than a loan from a traditional lender.

Applying for invoice finance is generally much simpler and completed much more quickly. In addition, it only requires the collateral inherent in the invoice itself. Invoice finance is also a lot more flexible as you can choose to trade invoices based on their amounts and due dates exactly when you need funds. Unlike with a traditional loan facility, when you don’t need funds, you’re not obligated to use your invoice finance facility. There are no lock-ins with invoice finance.

Would you like the security of being able to use invoice finance at a moment’s notice? If so, find out if invoice finance is right for you.

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