After hiring and taking care of people, small business financing is the thing that every owner-manager worries about the most. Cash flow is important for any business, and if there is a problem, the whole thing could stop. Your business can’t grow or even stay the same if you have bills that are past due.
When a small business owner or manager needed money, they used to have to go to their bank with nothing on but their hats and hope for an overdraft or loan. And that was it if you were turned down.
Small business finance technology has improved, but many business owners don’t seem to be aware of the changes.
Thanks to open banking, which connects your payment terminal or accounting programme to your bank account, the next generation of lenders will be able to look at your business in real time and get a general idea of how it works. So, decisions about loans will be made faster and easier than at high street banks.
“When it comes to running your small business, money is like a sixth sense.”
This complete guide to financing a small business will look at:
- Money to start a small business
What are the other ways a business can get money?
Fast loans and money for a business
And that’s on top of the many guides and tips about financial products you can find on our hub for funding your small business.
When it comes to running your small business, remember that money is like your sixth sense. If you don’t have any money, you can’t really use the other five.
Small businesses need money to start up.
Starting your own business is one of the most exciting things you can do in your life. Lastly, you can own something instead of just making money for other people. But what options do you have if you need money to start a business?
Here are the top 10 ways for small businesses to get money:
Loans and money for businesses quickly
Last month, the Federation of Small Firms said that the amount of money that was given to small businesses was at an all-time low. Only 43% of loan requests were approved, while 57% were turned down.
Open banking company Yolt says that UK small businesses lost a total of £3.6 billion in much-needed financing.
You found that the average small and medium-sized business (SME) asked for a loan of £331,275 to help the business grow. This was mostly for equipment, technology, and business development.
Small businesses, on the other hand, could often borrow about £50,000 less than that.
Should it be a surprise that small businesses are turning to quick business loans to improve their cash flow, as 42% of SMEs told the FSB they need to do?
Technology has completely changed how you can finance your small business, whether through an unsecured loan, invoice financing (borrowing against outstanding invoices), or merchant cash advances (borrowing against till takings).
Now, a business loan can be approved in less than 24 hours.
In general, the amount of a quick business loan can range from £1,000 to several million. Depending on the type of loan and the lender, it could take anywhere from one month to 15 years to pay it back.
When you need money quickly, like to cover a short-term cash flow problem, or when you want to take advantage of a buy-now opportunity, like buying a lot of shares at a deep discount, fast financing is often the best option.
Because the requirements for getting a rapid business loan are less strict, the interest rates can be higher and the penalties for not paying on time can be harsher.
Will my credit score go down because I want to borrow money?
Most brokers of quick business loans do a light credit check that doesn’t affect your credit score. Even if you get a loan, the interest rate you pay will depend on how good your credit is because all of these loan options depend on your credit score. Experian is a good place to check the credit rating of your business. If you’re worried, you can get a credit builder business account from Tide or Cashplus.
Other ways for businesses to get money
But you don’t only have quick business loans to choose from. Other ways for small businesses to get money are through peer-to-peer lending, merchant cash advances, and invoice financing.
Payments for bills
This kind of borrowing could be helpful for businesses that often sell to other businesses by sending them invoices. The invoice financier pays your bills quickly, usually within 24 hours, and takes a fee out of the total amount.
Since this option is only available to B2B companies, your customers must be other businesses and not the general public.
But there are two different kinds of invoice financing:
Factoring in bills
This is when the lender pays up to 90% of the bill that hasn’t been paid and then goes after payment directly from your clients. Some suppliers might get upset if they get a harsh phone call or email from an invoice factoring company asking for money.
Bills paid less
When you use invoice financing, the lender gives you a loan for a part of the unpaid invoice, but it is still your job to get paid.
Advance on credit from a business
This could be the best way to get money for your small business if you use a card terminal to take credit card payments.
Unlike a normal bank loan, there are no interest rates and you don’t have to pay back the loan every month. Instead, the lender gets a portion of the income from future card payments. If your business makes less money in a given month, the payback period will be shorter and you will pay less. Be ready to pay a little more if the business has a busier month than usual.
This option is a fast way to make money. A payment processor like PayPal, which has a product called PayPal Working Capital, may put money into your bank account as soon as you are approved.
Interpersonal lending
Peer-to-peer services like Funding Options and Funding Circle put small businesses in touch with individual lenders who can give them quick and flexible loans.
After you put in how much you want to borrow and for how long, the software checks your credit score and does other background work before putting you in touch with lenders.
If you go the P2P route, a decision on your loan may be made within hours, and you can get the money in just a few days.
