If you run a startup or a small business and want to exploit the growth potential, financing is one of the key factors. In some cases, financing is also essential to survive the first year of small business ownership. Unfortunately, it’s not always easy for new companies to qualify for a traditional bank loan. The bank demands sales and payment history, credit references and final accounts. Because of this there is usually no point in even trying to get a business loan from a traditional bank. It’s also a time consuming process that requires a lot of paperwork. This time can be spent developing your business instead while looking for other more flexible financing options. In this article we will give you examples of common funding and financing for small businesses and startups.
Factoring or invoice financing
With factoring you sell your accounts receivables to an invoice factor who will pay you an agreed percentage of the outstanding invoice amount. You will get the money upfront and the invoice factor will deal with collecting the funds from your client. Once the client has paid the full invoice amount to the factoring company you will receive the outstanding amount with deduction of fees to the invoice factor. The fee for factoring varies between 2-5% of the total amount. Factoring is a suitable financing option for small businesses that have outstanding accounts receivable but is in need of upfront payments. Since the factoring company is taking full responsibility for collecting the money it’s an expensive but time saving financing option.
Invoice financing is more like a traditional business loan where you borrow money against outstanding accounts receivable. You can lend up to 90% of your unpaid invoices and get the money up front. The money that your company borrow needs to be repaid once your client pays the invoice. For this short-term loan you pay both interest and fees. Unlike factoring you are responsible for collecting the outstanding funds when you use invoice financing.
Small business loans
There are many finance companies that challenge the banks by offering small business loans to small and medium-sized companies. With these small business loans, you can borrow up to $100 000 without any collateral. Even brand new startups can be approved for this kind of business loans. The finance companies evaluate all businesses individually and if there is a good business idea and serious owners behind the company there is a great chance to be granted a loan. You apply for a small business loan online in just a couple of minutes. You get an offer within an hour and the funds will be paid out the same day. You can compare small business loans at www.alltomforetagslan.se or use a comparison service for business loans.
When you take a small business loan you don’t have to worry about start fees or other hidden fees. Instead, you pay a monthly fee that is determined by your company’s credit score.
P2P lending or Peer-to-Peer is another financing option for small businesses and startups. With P2P lending it’s possible for borrowers and lenders to connect through a common platform operated by a third party. The lenders in this case are not banks but investors who lend you money from their own resources. For this you pay a fixed rate from 4.99% up to 24.90%. The interest rate is set based on your company’s credit rating and financial strength. The company behind the P2P platform ensures that all involved parties are treated fairly. It’s also the company behind the platform that dictates the conditions for the business loan.
Line of credit for businesses
Another option for small enterprises that’s in need of financing is to apply for a line of credit. A line of credit for businesses can be compared to a digital credit card. You apply for a credit limit online and if you get approved your company will have access to liquidity when needed. Withdrawals can be made from the line of credit anytime, once approved. The terms are flexible, and you will only pay interest for what you use. The rest of the money can be used as a free buffer. You apply for a line of credit for businesses online with an automated credit assessment. Once your application is granted you can see your line credit limit right away.
Most lines of credit for businesses doesn’t require any special collateral. Although in some cases the lender can request personal guaranty from one or more owners.
Other financing options for startups
Apart from the financing options mentioned above there are other ways to secure capital to a startup. Although these options presuppose that you can consider giving away ownership of the company. If you don’t mind this, you can contact venture capitalists and seek funding for your business. Just make sure you have an impressive pitch and a solid business plan to show off before you make your contact with the VC. The investors would want to know how your startup will make money and where in the process you are.
An advantage of taking in funding from venture capitalists is that you do not only get money into the company but also lots of knowledge and experience about how to grow a business.