6 options to finance business cashflow for growth

Did you know that twice as many SMEs were reporting reduced cash flow at the end of 2018 compared to at the beginning? When cash flow is slowing down, businesses struggle to thrive, or even to function properly. According to a recent Australian SME survey*, around 20% of business owners who suffered due to reduced cash flow did so because of loan rejections, making it challenging to finance existing debts. If you're worried about how your business will finance its debts, we have some suggestions. 

1. Bank Overdrafts 

Much like with your personal account, your business bank account is eligible for a bank overdraft. The size of your overdraft usually depends on your credit rating and previous history with your bank. 

Bank overdrafts provide your business with a little flexibility when it comes to financing. When a surprise cost emerges or an investment is larger than expected, your overdraft prevents you from missing out if your balance hits zero. 

In most cases, a bank overdraft doesn't come with a fixed repayment schedule. However, you should try to see it as more of a safety net than a quick way to finance business debt. 

2. Term Loans 

As one of the most traditional ways to finance business debt, term loans are easy to understand. A term loan will give you access to a set amount of money that you'll then repay over a fixed period. As your business's credit rating improves, you can access better forms of interest from most lenders. 

A term loan with a bank usually requires an asset as security for the funds. This can often lead to terms being quite inflexible to the lender. Most arrangements also require a good credit rating and trading history. Something else to consider is there are often lengthy applications with bank term loans. 

A new stream of alternative funding companies such as Banjo have come into existence to help Australian SME’s with their term lending needs. Some term loan products provided by such alternate lenders are unsecured. Applications are made online & decisions are made usually within 24 to 48 hours. 

3. Business Credit Cards 

Business credit cards can act as a useful way to manage short-term cash flow. The credit limit your bank grants to you will depend on your credit history, business size, and previous profits. In some cases, it can reach up to $100,000. 

Most credit cards are unsecured. Interest rates will vary according to your financial history. With that in mind, try not to become too dependent on the ones that come with high interest. 

4. Marketplace loans 

Marketplace loans, otherwise known as peer-to-peer lending, allow borrowers to secure finance through a competitive market. Although you can borrow up to $250,000, your loan may come from several sources rather than one. Despite this, you'll receive all the money you need in a single payment. 

Typical interest rates range from 6% to 30%, and the borrowing terms range from three to 24 months. What's more, even though your marketplace loan may come from several lenders, you'll usually receive a single payment. 

One of the biggest advantages of using a marketplace loan is that they're faster than other forms of finance. As a result, they're ideal for financing time-sensitive payments on debt. 

5. Invoice/Debtor Finance 

When you've issued invoices to clients, but they're outstanding, your cash flow is within easy reach. Using debtor finance, you can finance business debt before your clients pay their invoices. In other words, you're borrowing against your sales invoices. 

Your customers may be made aware that your factoring your invoices. You can borrow between 80 and 85% of the invoice value, and interest rates vary between 8 and 50%. 

To use invoice finance, you'll need to prove that your customers do consistently pay their invoices. When financing your debts using this method for a second time, you may benefit from lower interest rates. 

6. Government Grants 

Government Grants are usually seen as non-repayable investments. However, you will need to meet a strict set of criteria to apply and acquire one. The application process can be lengthy, but they're difficult to rival in terms of affordability. 

The grants usually vary between states. As such, a grant that's available to businesses in NSW may not be available in Victoria. However, some grants are available nationally. Grants don't usually have to be repaid, as they're seen as an investment in a business that can help the area thrive. 

When you need to finance business debt, make sure you explore all available options. Try to balance benefits such as speed against the risk of being in debt in the future. If you can afford to wait for a cost-effective option, do so wherever possible. Finally, before your choose a funding option consider getting professional advice from your Accountant or Finance Broker. As your trusted adviser they will be best to guide you in accordance with your personal circumstances.