Are loans for small businesses the best cashflow solution?
When experiencing cashflow difficulties, considering a business loan may seem the quickest and surest way to resolve the issue.
The simplest way of obtaining loans for small businesses is to increase your business overdraft.
But small businesses and start-ups may not be able to follow the traditional routes to releasing cashflow and in such cases other options may be preferable to taking out loans for small businesses, including factoring or invoice discounting.
Loans for Small Businesses – the Options
When customers start to pay late or not at all, cashflow can suffer. You handle debtors yourself – and can instigate late payment measures or threaten court action, but this takes time and can be stressful. That’s a reason why small businesses loans can be helpful.
Bank loans for small business and Overdrafts
- You want your small business to be successful? Going to the bank for a loan because customers are paying later is shouldering the problem yourself rather than dealing with the root cause.
- Customers may be experiencing difficulties themselves and even taking out a temporary loan in the hope cashflow will improve will not resolve the issues.
- Loans for small businesses can be harder to arrange, simply because of the risks involved. If your bank thinks customers are not paying on time, the chance of getting a loan to cover this is less likely.
- If you require a loan for bridging purposes while waiting for development finance, for example, then loans for small businesses can be useful if interest rates are competitive. Asset-based loans can be offset against equipment, fleet or plant.
Factoring Solutions for Small Businesses
- Factoring can be a secure cash acceleration solution because your greatest asset is your sales ledger.
- It hands over responsibility for collecting receivables to a third party – which, in itself, can encourage customers to pay in a timely fashion.
- Factoring solutions are not usually arranged for bridging situations and termination can be difficult.
- The factor also assumes control of your sales ledger.
Invoice Discounting for Small Businesses
Invoice discounting can offer a range of different solutions to cashflow acceleration, which may offer more flexibility than loans for small business or factoring.
Small Businesses can hand over all receivables to an invoice discounter, as well as opting for:
- Confidential Invoice Discounting – the customers do not know there is an arrangement in place
- Disclosed Invoice Discounting – customers are made aware of the involvement of an invoice discounter
- Export Invoice Discounting – overseas receivables are used for the purposes of invoice discounting
- Non recourse Invoice Discounting – the invoice discounter assumes liability for unpaid receivables
- Recourse Invoice Discounting – your business retains liability for unpaid receivables and has to refund monies forwarded if a client fails to pay
- Single Invoice Discounting – using one client
- Selective Invoice Discounting – choosing which invoices to use.
Deciding which cash acceleration solution is best for your SME can be a complicated process – and unless you have financial expertise yourself in the various options, it is best to get the advice of several lending providers who will be able to assess your business and offer the best way forward to financial health.
It is also a good idea to find a lender in your region – and who also has experience in loans for small businesses or factoring and invoice discounting for SMEs.
Factoring companies often offer invoice discounting services, but some factoring providers may be better placed for debt collection and therefore it is important to obtain a range of quotes and advice on financial services from different lenders.
For more help or to get started on the process of finding small business loans, factoring or invoice discounting for small businesses, complete the online enquiry form for free quotes without obligation within 48 hours.
Our agreed suppliers are based nationwide and include major high street lenders, as well as independent lenders specialising in SMEs and start ups which will be able to offer the best deals to help your business release cashflow and manage credit control.
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