7 Innovative Financing Solutions To Leverage Your Business Ventures
Any business venture requires robust cash flow to operate daily, but sometimes, it takes a few days, even weeks, to receive payments from customers. This is a reality that impacts the majority of the enterprises’ financing capacities. Faced with this challenge, businesses need to rely on traditional and non-traditional lending companies to leverage their activities.
For years, businesses have turned to banks to boost their capital. However, because of stringent requirements and high-interest rates, many entrepreneurs are turning to non-traditional lenders for innovative financing solutions.
Below are some of the non-traditional means businesses can leverage:
1. Using Skills To Trade With Another Business
If you want to avail of a business service but don’t have enough cash to pay for it, consider discussing with the service provider about a possible barter. For instance, if you offer business accounting services to a small web design company, talk to the owner to see if you can exchange your services for a free website upgrade. This applies to goods that don’t necessarily need cash payments, so utility payments are out of the question.
2. Venture Capitalists
A venture capitalist (VC) is an investor who provides a capital boost, mostly to startup companies, but VCs can only do this after seeing a huge potential in a product created by the latter. The additional funding is in exchange for a stake in the company.
To convince these types of investors to finance your business venture, you need to make sure that you have a groundbreaking product. As these business dealings often involve a huge amount of cash, capitalists want to ensure they can get their money back.
3. Invoice Factoring
Firms selling business-to-business (B2B) services and products may find invoice factoring an attractive financing solution. This method involves ‘selling’ invoices to factoring companies for businesses to receive additional cash flow while waiting to get paid.
Once the lender receives invoice copies from a business-borrower, it pays a specific portion of the total invoice value to the latter. Upon receiving payment from the actual clients, a business-borrower has to pay back a percentage of the value to the invoice factoring company.
4. Crowd Funding
Social networking applications have gone beyond connecting with friends and other business contacts. Finance companies don’t have a role in this method, which involves business owners making a public appeal to specific platforms for capital funding.
It works by asking a user to pay a certain amount of money to fund a product in exchange for the item itself. This may be an effective way to raise business finances since you don’t need to ask one person for huge amounts of cash. Up-and-coming business owners must ensure their product is innovative, though, to have better chances of getting the amount they need.
5. Lines Of Credit
This innovative financing method works similarly to a credit card. The only difference is that it’s intended for business use. Companies can use these to purchase a piece of equipment, increase their inventory, and cover operating costs.
Payments for these essential business expansion activities are paid for by the lender. Later, businesses have to repay these amounts, including interest rates, which range from 1-12 %, depending on the type of line credit you qualify for.
6. Merchant Cash Advances
This type of business financing offers cash advances against a company’s future sales. Lenders extend a specific lump-sum amount to businesses payable when they receive credit card payments from customers.
Merchant cash advances are often best for stores that accept credit card payments regularly. They also work great for small ventures that need cash but can’t raise any collateral or don’t have favorable credit ratings. Depending on the loan product, businesses can borrow from 50-250% of their monthly credit card limit.
7. Equipment Loans
A business equipment loan works similarly to a personal auto loan. This means the equipment also acts as collateral, which the lender can take once the borrower defaults on the loan payments.
Because it’s less risky compared to unsecured loans, most entrepreneurs may find it easy to get approval. Application requirements vary from one bank to another, but most lenders require your business to be in a sound financial condition for at least two years and possess a credit score of over 650.
A business that needs to purchase costly pieces of equipment for expansion may access up to USD$1,000,000 for this purpose. Getting an equipment loan is one good way for businesses to preserve their cash inflow while receiving increased revenues almost right away.
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With these financing options, small businesses can scale up because they’re no longer restricted by the amount of cash they have. Alternative funding companies offer less stringent requirements and flexible terms, allowing businesses to access the most ideal solution for their needs.
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