The time will come when even the most profitable of businesses need finance. This could be to complete a takeover, expand or introduce new product lines.
Yet traditional financial institutions can be very protective, and your company may need to look at different methods. In this article, we discuss three viable alternative financing methods for your business.
Crowdfunding
Crowdfunding has been around for some time now, in one form or another. It involves raising small donations from a large pool of people, which is then used to fund a venture. In return, the people who have invested usually get something back in the form of a product or service. While it is a way for artists and creators to make revenue, it has recently been widely accepted into the business world.
The concept came into its own after the financial crash of 2008 and is a truly digital medium. By spreading the word on social media and the internet, you can leverage a global interest in products. It is very similar to buying shares in a company, except buyers may get something other than profit such as a final product.
Online racehorse syndicates are prime examples of companies that have shifted to this model. Once a domain of the wealthy, racehorse shares can now be accessed from a range of price entry points. Digital infrastructure means owners don’t have to be in the UK but can come from across the globe. They buy into the horse, then much like a crowdfunding model, then share the profit made.
Invoice Factoring
Invoice factoring is a way to improve cash flow and add stability by selling your outstanding invoices to a third party. When you invoice for goods or services, the ones that have not been paid can create a backlog. A company will give you the bulk of the amount outstanding when it buys them from you, usually around 80% to 90%. The company will then pay you the rest of the amount and ask for their fee once payment is gained in full.
It is only a good method of getting money if you have a lot of outstanding invoices. If your cash flow is being hampered because of this, it prevents you from having to chase them all up. It is helpful for short-term bridging if you need your invoices paid and is much cheaper than a loan. However, it does have disadvantages, particularly if the customers do not pay and you lose money. Many of them may also not be happy with you selling invoices to a third party.
Equipment Financing
Equipment financing is a good choice if you want a loan to buy machinery or equipment. You then pay for it through monthly instalments, much like a traditional finance agreement. The equipment is used as security, so if you don’t pay they will take it back. It is used by many companies that need large items, such as construction and agriculture, but can be used by other types of companies.
These are all quite varied methods but one should work for your company. They often have better interest rates than bank loans, which can have high interest if you have been denied access to them before. Check your finances, see how much you need and what will be the best option for your business.
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Three Viable Alternative Business Financing Methods
