With coronavirus causing disruption across a multitude of industries, businesses are looking for alternative ways to improve their cash flow. Innovative funding solutions like asset refinance, invoice finance and unsecured loans can provide small to medium-sized businesses with speedy financial support, including those who find it difficult to access more traditional finance types like bank loans.
If you needed finance for your business in the past your options were fairly limited. You’d have to apply for funding from a traditional source, typically in the form of a secured loan from your local bank. Nowadays there are a number of flexible options and a variety of lenders, making it easier for you to find a finance option that’s right for you.
In this article, we’ll focus on three finance options in particular: asset refinance, invoice finance and unsecured loans. We’ll shed light on the main features of each to help you make an informed decision before applying. As soon as you're ready to start the process, let us know and we’ll match you with a lender and product that suits your business’ needs and financial circumstances.
Broadly speaking, asset finance – depending on what form it takes – is a type of lending that provides you with access to the assets you need to operate (e.g. equipment, machinery, property and vehicles), or allows you to release cash from the assets you already own.
Equipment leasing, hire purchase, finance leases and operating leases provide you with access to assets, whereas asset refinancing is a type of secured loan that enables you to “unlock” cash by securing a loan against the valuable items your business owns.
Asset refinancing is one of the most popular ways to improve cash flow and is worth considering if you’re not eligible for an unsecured loan. The concept is simple: if you don’t keep up payments on the loan, the lender takes the asset to get back what’s owed.
Typically, the asset in question has to be critical for operations and removable so that the lender can take it as security for the loan. There are a range of asset financing products out there today, including refinance combined with other finance.
Points to consider:
- Secured lending can be cheaper than unsecured lending as there is less risk for the lender
- The more assets you have, the more you can potentially borrow
- Suitable for companies that don’t want to involve their personal assets via a personal guarantee
- Although your credit rating is still taken into account, the asset is the main focus
If you invoice businesses regularly, invoice finance is another innovative way to improve cash flow for your business. Invoice finance involves selling any unpaid invoices to a third party (bank, financial institution or independent vendor) for a cash lump sum.
Because your invoices evidence your future income, you won’t necessarily be required to have a strong track record of favourable accounts or high-value assets. It’s a very quick and accessible way of securing additional cash for your business.
Some lenders will offer short-term contracts, whereas others will require a minimum commitment of 12 months. The team at Funding Options can help you find the most suitable option for your business – we work with hundreds of lenders across a range of solutions.
There are three main types of invoice finance: invoice factoring, invoice discounting and selective invoice finance and spot factoring. Let’s take a look at each.
A type of invoice finance for companies that invoice their customers and receive payment on terms. The lender will lend against your customer invoices, allowing you to gain the majority of the invoice cash straight away as opposed to waiting weeks or months to be paid. The lender provides ‘credit control’ services to ensure your customers pay on time.
The simplest form of invoice finance, invoice discounting requires a more “hands-on” approach by the borrower and is typically only available to established businesses with a higher turnover. Invoice discounting is normally confidential and you’ll continue to deal with customers directly.
Selective Invoice Finance & Spot Factoring
These allow you to identify which invoices you'd like to finance, enabling you to be more flexible in your approach and get access to funding only when you need it. (Selective invoice finance and spot factoring can be harder to secure than the other options.)
Unlike secured business loans, unsecured business loans don’t require you to offer security in the form of assets such as property or equipment. This makes them a potential fit for businesses without many assets as well as companies who need finance quickly.
An increasing number of businesses, particularly those in industries like tech, don’t have access to high-value tangible assets. For instance, instead of owning their office, they might rent one from a workspace provider on flexible terms.
There are a number of lenders out there today who can lend up to £250,000 unsecured to eligible businesses. As the lender has no security as such, trading history will come under more scrutiny and the lender may also ask for a personal guarantee.
No matter your circumstances, Funding Options is here to help you find the right funding for your business. Our award-winning platform searches the market to match you with loans and alternative finance options that you’re eligible for, giving you the capital you need to succeed.