Sadie Keljikian, Express Trade Capital
Innovation, in every sense of the word, has taken over. The combination of consistent technological advances and a global market in flux has changed the culture and functionality of business operations on a global scale. One of the most remarkable results of this has been a rise in creative financing methods designed to serve new business models or those that were previously difficult to fund.
Although some funding options are universally available to those with strong credit (i.e. SBA loans for new small businesses), managing a business’s debt and retaining maximum equity can be a tricky balance, particularly if you have lackluster credit or no credit at all. Fortunately, financiers are creating new services and creatively applying existing ones to accommodate businesses that previously didn’t exist or had limited access to sustainable funding. Here are a few of the most accessible and adaptable forms of financing available.
If you sell seasonally specific or highly specialized products, inventory financing is a great way to maintain your working capital without giving up equity or accruing excessive debt. For example, let’s say you sell specialty liqueurs year-round, but approximately 70% of your sales occur in the month leading up to Valentine’s Day. Even with healthy annual sales volumes, this inconsistency can complicate year-round operations and strain your resources.
With inventory financing services, your financier will simply store your unsold inventory in a secure third-party warehouse, then provide you with a loan or line of credit, using the stored inventory as collateral. Since you won’t need those bottles until next January, you’ll have plenty of time to supplement your operational funds, pay off the funding you receive, and distribute the goods in time for Valentine’s Day. Businesses that benefit most from inventory financing are wholesalers who sell non-perishable consumer goods, as they needn’t worry about a lack of quality control if their inventory spends weeks or months in storage before distribution.
Business Line of Credit
Although a line of credit isn’t exactly a new method of financing, its versatility makes it worth mentioning in this context. Since a massive proportion of new businesses don’t sell tangible goods, the lack of readily available collateral can make it difficult for them to secure funding. Unsecured lines of credit are specifically useful for this because, much like credit cards, they don’t necessarily require traditional forms of collateral. Lines of credit are also like credit cards in that if you consistently pay off your balance, cash advances up to the full amount in your assigned credit line are available to you at any time.
For businesses that sell perishable goods or don’t sell goods at all, equipment financing is an attractive option. If your business uses expensive appliances or computers, you may be eligible to receive a loan or line of credit against your equipment, much the same way an individual would against a car or real property. Provided that the value of your equipment is equal to or greater than your business’s financial need, this is one of the simplest options. Most businesses in the service industry can take advantage of this, including some that are particularly difficult to finance like restaurants, medical practices, laundromats, and factories.
Short or Medium-Term Loans
Short or medium-term loans from private lenders are a somewhat expensive option, but they can be extremely useful if your business needs cash immediately and can pay it back very quickly. These loans are generally approved within a day and as a result, have higher interest rates than a standard bank loan would. If you receive a large wholesale order for which you expect to receive payment immediately, a short/medium-term loan can provide you with the cash you need to produce and ship the goods and bridge the financial gap that can occur when you have to pay to fulfill an order before you receive any payment from your customer. There are a few ways to address this problem, but if timeliness takes priority over cost, this kind of loan is the best choice.
Purchase Order Financing
If you’re dealing with the cost prohibitive nature of production, but don’t have particularly good credit, purchase order financing might be your best option. Purchase order financing (sometimes called “PO funding”) relies on the creditworthiness of your customers rather than that of your own business. You receive a cash advance against confirmed, open purchase orders to help pay for production of the orders in question. This kind of financing also allows significant flexibility and can combine with other financial arrangements like receivables financing. This means you can easily establish a seamless system that allows you to fulfill orders quickly and consistently without potentially draining your operational funds or accruing more debt than you can manage.
In short, funding options have never been more plentiful. If your business needs a financial boost, there is likely a perfect solution to your needs and limitations. Be sure to research your options and choose a reputable lender who will walk you through its process and fees to ensure that you get the best solution for your business and budget.
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