Business Finance: Why Taking The Short Route is Often The Deadly Route

Starting a business from scratch and getting it to move forward on its onward journey requires a solid business financing guide in order to make it into a successful enterprise. Most businesses start with help of friends or using family property as collateral, but eventually, if the venture has to stand on its own two feet it will need continuous financing till it attains sustainable growth.

Financial planning

Business planning

Even after the business is up and running, the management will still have to ensure that future growth plans do not get affected by inadequate financing, else the business is destined to fail. While there will undoubtedly be many hiccups on the journey towards growth, having a solid business plan in place can secure sufficient funding from potential investors. Demonstrating good cash management also sends out the right signals to investors and lenders. A weekly cash flow chart can assist in a growing venture.

Know your options

Financing a business will always involve injecting doses of equity and debt, as the financing cycle is a journey which will never end, since it involves constant reappraisal and review at every stage. This is why it is extremely essential for every entrepreneur to know what the options are along the way which will ensure successful progress. If you are aware of the alternate routes it is great, but if you have to ask for directions then the journey can become daunting.

Businesses require capital for different seasons, for which investors provide a range of services. Some of these include:

  • Additional staff
  • Expansion of facilities
  • Purchasing inventory
  • Paying off other debts
  • Advertising
  • Making a payroll

Short-term business loans

Small start-ups often rely on short-term business loans instead of a long tenure debt financing. These loans are preferred by businessmen through merchant cash advance or factoring despite their high interest rates and unfavourable terms and conditions. This is primarily because these loans are easier to get than any other unsecured business loan. If you have not been in the business for long, some of the lenders may ask for collateral, in which case it may become difficult to get the loan.

Today availability of business loans is not just restricted to financial institutions but to non-banking companies as well. They come with a range of options that can help your business in more ways than one. These loans are generally collateral free and sustain your business without putting your assets under security. Once you are approved for a certain limit, you can withdraw funds whenever you please and pay interest only on the amount utilized.

Check if it makes sense

Since the application process is hassle-free than the other alternatives, nearly all short-term business loans come with comparatively high rates of interest. Additionally they provide funds fast, as soon as one business day. However, in the end you will end up paying significantly more money in exchange for the loan amount. The best way to minimize this is by repaying it back as early as possible.

Another major drawback of applying for a short-term business loan is that these loans require frequent re-payments, either weekly or even daily in some cases. If you are unable to raise consistent revenue from your business, you should not consider this option at all. This is because if you fail on your payments on time, you catch the risk of getting caught in a vicious cycle of debt which can ultimately jeopardize the future of your business.

If your credit rating is far from ideal you can consider nontraditional financing sources. This is because they lay less emphasis on credit scores at the time of processing the loan application. Angel investors or individual lenders can help you get your venture back on tracks in exchange for a share in the eventual revenue.

Cost cutting

How to revive a failing business

Companies fail for many reasons such as poor planning and ineffective management. If your business is losing money, you will have to devise potential solutions, and the faster you do it the better.

  • Cost cutting: Eliminating unnecessary expenditure is one way to get your financial house in order. Take several looks at the budget and find where you can cut expenses,like implementing an energy saving program or even curtailing the weekly rounds of coffee in the office.
  • Infuse cash flow: If you are confident that your business will succeed but you don’t have enough cash to sustain it, consider applying for a quick business loan to help you through this lean period. You can offset the high interest rate by utilising the money to offer better service.
  • Take advice: Certain non- business organizations and business administration offices often provide free advice to struggling businesses. This can go a long way in helping you on long-term sustainability issues for immediate improvement in getting your business back on track.
  • Negotiate afresh: Try to chalk out a better deal with your suppliers.
  • Claim tax losses: If your loss is greater than your income, you can claim loss on the difference and carry it forward to lower your taxable income for the next financial year.

Incurring a debt is a part of the business, but this drawback shouldn’t keep your business behind. This is why business finance is a popular option to help your business grow. Since there are pros and cons in business finance, unless you have a good plan in place, it is not the right choice for you. That said, despite the pitfalls, there is tremendous value in short-term business financing.

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