Businesses rely on a variety of types of financing to launch, maintain, and grow their operations. Starting capital is often accessed through large bank loans or investors, while ongoing cash flow demands can be managed using a variety of shorter term financing solutions.
While different kinds of financing might look relatively similar on the surface, the mechanics of where funds come from, what they can best be used for, and what kind of financing is most appropriate for a given situation are very different. Because of this, short term finance providers like Fifo Capital work very closely with customers to apply the right solutions to particular problems in order to ensure their success in both the short and long term.
Short term financing fills a critical gap
Large financial institutions do offer finance solutions that SMEs can use to cover relatively small cash flow interruptions. Unfortunately, because they’re designed to primarily work with large business and large amounts of financing, those products aren’t always the most appropriate solution to a given situation. For example, a business line of credit could be used to deal with a wide variety of cash flow problems, but it also puts the business directly into debt, and could result in fairly significant interest payments.
A business that can afford to take on some debt still also needs other solutions. Large institutions typically prefer to issue large loans in excess of $1 million, which often take weeks or months to process. This is a serious problem, since SMEs often need much smaller loans to pursue short term growth opportunities, to upgrade equipment, or to cover other costs from one day to the next.
Financial institutions that specialise in working with small businesses address these and other problems with very specific products. They can offer financing much more quickly than larger institutions, often within just a few hours, and can work with businesses that may not qualify or be denied financing by their primary lender. They can do this because they work with SMEs much more closely to ensure the success of their clients, and to help manage their own risks.
Entrepreneurs need expert support
Finding financial solutions that will meet a business’ immediate needs efficiently while also helping to ensure their long term success isn’t a simple task. Is it better to take out an unsecured loan, to use invoice financing, or to defer outgoing payments with supply chain finance? The answer depends on the situation, and a wrong choice could result in inefficiencies in the future. Unlike their much larger counterparts, small and medium sized enterprises usually can’t afford to hire a team of experts to manage their finances and to help them make these decisions. By working closely with a financial representative from their alternative finance institution, however, they can get access to the expertise they need on an ongoing basis.
Because businesses work with and build a one to one relationship with a single expert, the likes of Fifo Capital is able to build an increasingly nuanced understanding of individual client businesses and their needs and capabilities. This is critical, because it allows us to offer financing to businesses who otherwise might not be able to access the funds they need from their primary bank without jeopardising the health of their own business.
Financial institutions need to manage risk
A fair question that a business owner might ask at this point is, “Why would a financial institution like Fifo Capital invest this much effort in their clients?”. The answer is simple: It’s how we make our business work. Issuing small amounts of funding through any financial product, whether it’s invoice financing, supply chain finance, small business loans, stock loans, or anything else is labour intensive and risky compared to how larger institutions work.
By working very closely with clients, your financial representative helps to ensure that the business succeeds, and that any issued funds are successfully recovered. More importantly, it means that client businesses become more successful, and stick around to do more business in the future. In this way, short term finance institutions like Fifo Capital become long-term partners with their clients, and are able to facilitate and share in their success.
Small businesses need long term support in dealing with inevitable everyday cash flow issues, whether it’s to keep their operations running through a cash flow interruption, or to pursue a growth opportunity. By building and maintaining a close, long term relationship, alternative finance institutions can provide both the funds and the financial expertise their clients need to facilitate both their clients’ and their own ultimate success.