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Which Type of Business Financing Should I Apply?

Anyone who runs a business knows that funds are vital. Even a brief interruption in cash flow can prove an impediment to routine operations. Access to sources of funds is just as necessary if one plans to expand, modernize or launch campaigns to generate more revenues. Wise business will always be on the lookout for sources of funds they can tap into whenever the need arises. One can go the regular route or one can explore other options.

Regular channels of business financing are banks and financial institutions that play by the rules. One must have a proper credit rating, a profitable ongoing business or a business project with a project report, audited financial statements and plenty of other documents in support to get funds at a low rate of interest. Some businesses that are struggling simply find this to be a tad overwhelming. Then there are non-conventional types of business financing that deserve serious consideration.

Finance from friends and relatives

One must keep options open when it comes to sources of funds for business. It may be the easiest way to get funds to borrow from friends and relatives. You may or may not pay interest. You may reply at your convenience. You certainly do not have to offer any security. The risk is that if you are not able to repay you stand to lose in your relationship.

Loans against hypothecation of stocks, against orders and against invoices

No businessman should overlook these three vital sources of financing for small businesses. Loan against hypothecation of stocks is a nice way to have access to funds even after investing in stocks that may take some time to process into finished goods. Obtaining loans against orders is another way to remain liquid. One gets an advance of up to 70% of the order value and is free of cash constraints. Similarly, the gap between raising an invoice and receipt of funds can be anywhere from a week to a month or even 3 months. One can get finance against bills in the short term, of up to 70% of the invoice value and the lender “buys” the invoice, remitting the remnant part after taking his cut when the buyer makes payment.

Cash advances

The above three methods may not be suitable. There are times when a merchant is stuck and the only way to get funds in hand quickly to meet immediate requirements is to go the merchant cash advance route. Any merchant in operation for two or three years with a credit card sale of $10,000 can access funds up to $200,000 simply by furnishing proof of identity, proof of ownership of business, proof of residence and bank statement. No collateral is asked for and repayment is tied to card sales as a percentage. The downside is that the factor rate or APR is high but then when one gets MCA from a suitable lender the terms are reasonable.

A wise businessman will explore and keep all options open, taking the best one when required and forge ahead.


Source by Jordan James


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