The success of a company depends on its ability to handle financing. Yet, the reality is that cash flow problems are one of the primary reasons for a business failure. Lack of funding can impact the business on so many levels.
Without funds, it will be challenging to pay suppliers. This will have a direct impact on inventory. Without products, it is impossible to meet customer demands, leading to the demise of the company.
A cursory search of why businesses fail will yield a lot of results. Financial hurdles are one of the most significant reasons. Improper cash flows lead to a lack of working capital to keep the day-to-day operations going. It is in situations like these that business loans provide a fantastic solution to struggling entrepreneurs.
Overcoming Funding Challenges for Businesses
Traditional Banks have for a long time given funding solutions to businesses. But, there are some challenges that entrepreneurs must overcome. One of the most significant is a good credit score. The banks will run a credit check. They do this to determine the creditworthiness before disbursing funds.
A poor credit score can be a major stumbling block. Banks may shy away from lending to individuals who have a poor credit score. The lack of a business’ credit history further exacerbates the problem. This is a roadblock for new entrepreneurs. The banks will look at their personal credit score before making a decision to go ahead with the funding or not.
This is not to say that there are no loans available to those without a good credit score. There is the less favorable option of bad credit loans. These however may not be the best option because of the high-interest rates.
Alternative lending platforms now offer small business loans. The advantage to entrepreneurs is that they do not have to deal with the stringent application processes that are typical for bank loans. The benefits of such platforms are many, including:
- Fast application processes. You can apply for a small business loan to bail out the business when facing financial stress. Most digital platforms need less than 10 minutes of your time. The lenders will ask for basic information about the company and yourself. They do this to determine your creditworthiness.
- Quick approvals. Once you pass the qualification process, you can have the money in your account within 24 hours. It is easy to open a checking account online instantly and link it to the lending platform. They will need this to ensure a smooth transfer of funds.
- Less stringent eligibility criteria. All you need is proof of business registration and business location in the country. You must have also been in operation for a particular period and have proof of income.
- Many credit facilities include invoice financing, equipment financing, inventory financing, and more. Business lines of credit give flexibility with the amount you can receive.
- Flexible repayment terms including weekly, bi-weekly, or monthly. Ensure the lending platform is transparent in the pricing structure and fees. Reputable lenders have upfront pricing, so you know exactly how much you should repay.
Business Loan Options to Consider
As we stated, there are different types of loan facilities available. Have clarity on the kind of funding you need to keep the business afloat. Determine how much money you need and take time to research available lenders.
Now, let us look at some small business loans that can help avoid business failure.
● Working Capital Loans
Working capital loans are short-term facilities. Business owners can apply for such loans to take care of day-to-day running expenses.
29% of businesses will close shop because they run out of money. 1/3 of business owners admit that they do not have enough cash flow to keep running. It is during such times that working capital loans prove to be of immense help.
● Invoice Financing
Most businesses operate on credit facilities. That means that invoices are eligible for payment within 30, 60, or 90 days. Business continuity depends on the customers paying up at the right time. If there is a delay in payments, the business will face cash-flow issues.
Lenders can avail funding by using the invoices as collateral. It provides a fantastic solution to getting working capital for the business.
● Equipment Financing
Depending on the type of business, lack of proper equipment can be a big problem. Even if the company has the right machinery, there will be cases when they need upgrading or fixing.
Dipping into the cash reserves for such expenses might not be the best solution. The company should maintain cash amounting to 3 to 6 months’ worth of operating expenses.
Equipment financing offers cash for one-off purchases or machinery alterations. The money can also go into purchasing office furniture, computers, and vehicles.
● Inventory Financing
Inventory financing makes it possible to have enough stocks all year round. Such loans are especially ideal for seasonal businesses. The company can buy products during off-peak seasons to sell when the time is right.
Collateral for the loan amounts comes from their inventory. Taking up such loan facilities ensures that the business has a constant cash flow to ensure that the business runs smoothly.
● Business Lines Of Credit
Business lines of credit are a fantastic option for small business loans. They work pretty much like standard credit cards. The lender puts a cap on the loan amount. The business can then draw only what it needs.
That means even if the limit is $500,000, you can take out only $200,000, depending on the business needs. Now here is why business lines of credit are a good option. The interest applicable on the loan amount will only apply to the $200,000. This is unlike the traditional loan that would charge interest on the total $500,000.
Final Thoughts
Proper cash flow management is an issue that many businesses struggle with. Yet, it can determine whether a company stays open or not. Business loans provide a solution to avoiding business failure.
There are traditional and alternative lending platforms available to entrepreneurs. The challenge with the former is the tough qualification criteria. Alternative lending platforms are less rigid in their needs.
Application and approval processes are quick. They can, for example, avail funding in less than 24 hours. Quick access to cash can bail out the business in times of emergency. When applying for a loan, take time to research the lenders. See what they have in their offerings and make sure you read plenty of customer reviews.
