When businesses go looking for financing, they rarely do so with a great deal of time on their hands. Whether they’re hoping to seize a growth opportunity, or dealing with an unexpected cash flow problem, time is nearly always of the essence. Depending on the urgency and the nature of their particular situation, this often forces businesses to accept unfavourable interest rates. Worse, some businesses will simply apply for business loans with many institutions at the same time, hoping to qualify for a good rate with one of them. While that might work once, it can wreak havoc on the business’ credit profile.
Highly versatile alternative finance tools like supply chain finance and invoice finance allow businesses to buy time, and to avoid this type of scramble. This allows them to negotiate from a position of strength, and to secure favourable loans conditions while protecting their credit profile.
Borrowing under pressure inhibits long term success
Businesses need to manage their costs as well as possible if they want to be able to grow and to compete within their industries. This is particularly important when getting medium or long term financing, because settling for a more accessible—but higher interest—loan may otherwise have a dampening effect on the business. A business that has to make larger than typical loan repayments will inherently find itself at a competitive disadvantage.
Businesses need cash fast, but getting low cost loans takes time
Going through the process to get a great business loan can take weeks or months, depending on the institution, the type of loan, and the business. Businesses that need funds, however, rarely have the time to wait that long. Regardless of whether it’s about growing the business, making upgrades, or keeping operations running, every day of delay translates to lost potential revenue.
Sacrificing your credit profile for a loan is not worth it
Applying for multiple loans at many institutions might sound like a good way to shop around for a great loan offer, but this is a mistake. Every lender will conduct their own credit check, which will affect the credit score itself. This means that it may actually increase the interest rates that the business is offered, while also reducing the business’ credit worthiness in the future.
The ideal solution is a type of financing that’s immediately accessible, covers costs in the near term, and is off-balance sheet, so it doesn’t impact your ability to get more financing.
Alternative finance allows businesses to move forward fast
Invoice finance and supply chain finance are facilities that can be deployed either systematically—to finance a business production process—or situationally, as a way to free up a significant amount of working capital at need. What makes it ideal in this type of situation is the speed at which businesses can access funds, and the way in which funds are made available.
Invoice finance is a way for a business to give itself an advance on income it has already earned. Specifically, you can exchange one or more outstanding invoices for most of their value in cash. The funds are typically made available within a single day, so you can address cash flow issues almost instantly. The financial institution, for its part, collects the payment for the invoice from the customer when it comes due before issuing the remaining funds, minus their predetermined fee. Because the party responsible for payment is the customer to whom the invoice was issued, this is not actually a loan, and can work seamlessly alongside other forms of finance.
Supply chain finance
Supply chain finance works by temporarily covering supply costs for businesses, effectively extending payment terms to businesses of up to 90 days, after which funds need to be repaid. This gives businesses the time they need to use the working capital that they would have used to pay suppliers directly, and reapply it to deal with cash flow interruptions, or to fund growth and development while pursuing longer term financing.
In order to compete effectively, businesses need financing that will advance their goals in the near term without compromising their success in the future. Using supply chain finance and invoice finance to access funds in the short term allows businesses to manage problems and to pursue their goals aggressively, while also taking the time to get the longer term financing that’s right for them.