Getting cashflow for your business
Updated: Sep 27
What is Debt Financing?
Financing options available for businesses?
Most small businesses will eventually need access to capital through business financing, to grow or sustain. One of the most critical skill a business owner needs to possess is to be able to find the right funding model, lack of which will detrimentally impaired the growth of business. And it's utterly important not to step into the traps of being locked in to unfavorable terms, both in debt and equity financing.
In simple terms, debt financing is to borrow from a lender. A lender can go beyond a typical bank, it can be another institution or an established niche lender that suits your debt financing needs.
Unlike equity financing (or getting new shareholders into your business), debt financing doesn't do the following:
It doesn't dilute your ownership of your business
It has a deadline to repay the debt and upon full repayment the relationship ends
The cost of debt financing is a business expense with tax benefits (consult accountants)
Debt can usually be refinanced or negotiated to more favorable terms and conditions
Financing options available for businesses
There are four common options we usually present to businesses:
Cash out via equity of asset, including but not limited to real estate asset, at times can be real estate owned by directors
Cash out from receivables ledger. If your business deal in the B2B sector, and you have invoices being owed by whom you do business with but payment is not as promptly, you can usually borrow against the receivables, it's an asset for debt financing
Trade finance or Purchase Order finance. Sometimes it can also be an equipment finance depending on the purpose of financing. You can effectively borrow to buy for business purposes - for instance equipment, or as unusual as raw material or even refurbishment of business premises
Cashflow financing via consistent revenue history or receipts from customers. We commonly refer this as unsecured business loans, with borrowing capacity assessed against monthly revenue record and can be as much as 80% of average monthly revenue, commonly provided by a lot of fintech lenders in the market, of which has different appetite and market niche.
Factors to consider when choosing which options to go with:
Tenure of loan. It can vary from as short term as three months.
Turnaround time/urgency of funding. It can vary from a few days to few weeks. The quicker the funding to be in place the more expensive it gets in fees and rates.
Loan amount. You probably only need less than $25k for only a few months, or as large as in the millions for 5 to 15 years. There are different products for different sorts of needs.
Cost of loan. Very much subject to purpose of funding, or return on cost. The margin of benefit determines your flexibility in costs.
Loan documents checklist. Different loan options come with different sets of requirements on documents/info you need to provide. Sometimes it's not a matter of going with the cheapest rate and fee, it is also subject to your circumstances.
Debt financing for businesses unlike traditional home lending, it's not checklist-oriented. Purpose of funding and clear unconditional exit strategy are critical to obtain an approval of loans.
Speak to us to explore your business financing options. firstname.lastname@example.org