Your growing business will likely require some financing to achieve its business goals. Thankfully, there are many different products available to supply your business with access to needed cash.Recall these different forms of financing requirements: there is capital for fixed assets (usually one-time, larger purchases like equipment or a building) and working capital (to cover operating costs such as rent, wages and supplies).
Your bank will offer a range of solutions to address a range of financing needs. Use this brief description of the more popular types of financing to better understand each option:
- Term loans. Large amounts of well-placed capital can make a big difference to your ability to stay competitive. If you are planning to purchase fixed assets (like a new kitchen for your restaurant, or new computers for your design firm) then consider a term loan.
- Bridge loans. This type of financing provides your business with a ‘bridge’ to get over short-term financing gaps while you arrange a more permanent solution.
- Operating line of credit. These are usually a good, flexible option for businesses seeking short-term funding while they collect accounts receivable or move inventory. A line of credit acts as a cushion to help you manage cash shortfalls or seize opportunities.
- Business credit card. A credit card provides a form of short-term financing because you can charge business expenses to the card and pay later. Many cards can be used without incurring interest charges as long as you pay your balance in full within a stated period of time. With many different options available, business credit cards also help you to separate your work and personal expenses to make year-end accounting easier.
- Lease financing. Instead of buying office equipment, technology or manufacturing equipment, leasing is often preferable. Similar to a car lease, your business agrees to pay a specific monthly amount for the use of an asset.
- Factoring. Large customer orders can squeeze cash flow as the owner tries to juggle the cost of fulfilling the order with collecting payment. To turn those accounts receivables into cash, you can sell them at a discount to outside lenders.
Your business will likely need to borrow money at some stage of its development. The more advance planning you do to understand your borrowing options, the better your chances of getting the financing you need at the best rate possible.
(With material courtesy of Scotiabank Get Growing for Business).
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