Four Business Financing Options To Consider
If you have just started your business and want to take it to the next level, there are many aspects to think about. Expanding your operations is one option. You can also explore new markets or expand reach in the market by canvassing new areas. You can even widen your product or services range and improve your offerings overall. No matter which option you select, business financing will help you achieve your goals by pumping in the funds needed for your new endeavours. There are quite a few kinds of funding methods that are offered by business loan companies. Here’s a look at the top four to give you a better idea of what you should be looking at.
Term loan
When you know that you have to repay the loan amount within a specific period, it is easy for you to plan ahead and stay committed to a disciplined repayment plan. A term loan comes with a predetermined repayment period and regular instalments. Depending on your need, you can choose a short term, long term or intermediate term loan to cater to your specific needs. With these, you can get loans for a period of 12 months going up to 5 years or more.
Usually, these loans have a ceiling limit of two crores but the advantage is that these are non- collateral loans. So that means you do not have to take on a lien on any other business or personal asset for this loan.
Equipment finance
If your company is in a competitive niche and your market presents great demand for the product you offer, then upscaling your operations is a good move. This could mean that you can produce more and address the market demand while improving your footprint in the niche and making your sales turnover better. However, to do this, you may need to invest in new equipment or machinery. Even if your company offers a service, to improve your service range, you need new staff as well as new equipment to handle the extra load.
Often, the equipment or machinery you need is expensive and you do not have the cash to make that kind of capital investment without affecting your company’s cash flow. Business financing is your solution to such expenses that you cannot afford right now. Equipment or machinery loans are designed just for such needs and these are the loans that you should be looking for.
Letter of credit
This is a credit limit that many trading businesses, in particular, utilize to get funds to improve their business. With a letter of credit, the business loan companies give a funding guarantee. Usually used by businesses engaged in international trade, the letter of credit is a very useful and smart financing move for business that are used for both import and export activities.
These financing options come in very handy when your business is dealing with new suppliers. To give the supplier the confidence to do business with you when you are unknown to them, you can get a letter of credit from a lender covering the amount payable. This gives them an assurance that they can confidently release the supplies to you without worrying about whether they will get paid or not. This method comes in very handy when you have to import specialized materials available only from a handful of suppliers.
Working capital loans
One of the most frequent requirements for a business is working capital. These funds are essential for the business’s daily expenditure and a shortage can affect the operations very badly, even bringing them to a standstill in a crisis. Working capital enables the business to purchase raw materials, add inventory, pay the staff etc. For this purpose, business loan companies offer short term loans for 12- month tenures generally. The lender may set the maximum amount allowed for such loans and also specify the purpose for which it can be utilized. If such a loan matches your needs, taking out a working capital loan may be a good move when you have such a need.
If you are in need of business financing, a good first step is to understand what kind of loan you need and then start your search for good lenders offering matching products. This helps you ensure maximum utilization of the funds so you do not have a liability that is unnecessary or underutilized for your business.