There are plenty of businesses being started every day worldwide. No matter the industry and niche they choose, one thing is common with all of them. They need capital in order for the business process to function. Capital is always obtained through sales of either services, products or some combination of both. On the other hand, there are other financial solutions that can be used to gain capital. The truth is, many businesses get up and running, but few remain in the market after just five years. And in order to be one of those few, you need to take every advantage you can get, as long as it is legal.  Here are some of the business finance solutions that can help you greatly, but might not have thought of yet.

1.      Venture capital

Since acquiring capital is the most important thing in keeping a business afloat, raising sufficient amounts is the main problem. Usually what happens for businesses in their initial stages is that they face the difficult challenge of getting favourable bank loans. These loans are used to get the company off the ground and invest in the future. The problem is that smaller companies that need these loans the most will get the most unfavourable rates because they have very little to default back on. So, the alternative we would suggest is venture capital. What venture capital companies do is offer capital in exchange for equity in said company. This model of financing is perfect for new businesses as such firms focus primarily on future potential while banks use past performance as the primary criteria for measuring interest rates.

2.      Asset-based financing

Another popular business financing practice is Asset-based financing for stimulating growth and acquiring working capital. It is a general term used to describe when a lender accepts the assets of a company as collateral in exchange for a loan. These types of loans are financed against accounts receivable and sometimes against inventory. The reason for this is that receivables are some of the most liquid types of assets a company can own, then comes inventory. Lenders favour receivables because those are self-liquidating in a short period of time and do not react negatively to problems such as shrinkage and physical damage. A sub-category of asset-based lending and financing is factoring. It stands for the purchasing of a company’s accounts receivable on a non-recourse basis. Asset-based lending can prove to be the best source of working capital for most companies. This is especially true in situations where traditional bank loans may not be available or come with unfavourable interest rates and conditions, in general. For more information on any of these subjects, contact your local professionals like the Classic Funding Group, for example.

3.      Lines of credit

A line of credit is a loan designed to provide short-term funding to the company for the sole purpose of maintaining positive cash flow. Later in the business cycle, when additional funds are generated, the loan can be repaid. It is a popular financial business decision with its own purpose. Commercial banks are offering a revolving line of credit with a fixed available amount. When you use said funds, the credit line is reduced and when you make payments, the line is replenished. The advantage that it offers is that there is no interest gein accrued until the funds are actually withdrawn. Also, the line is immediately available for use by the company.

4.      Letters of credit

A letter of credit is a guarantee from a bank. If the borrower fails to pay the bank will have to honour a specific obligation that was predetermined by the contract. These are useful when dealing with new vendors who are not convinced of your company’s credit stability. The bank offers a letter of credit as a form of assurance to the said vendor. There is no exchange of funds in this case and that is the sole difference between the line of credit and a letter of credit.

5.      Long-term debt

Finally, long-term debts are usually used as an initial form of financing for all companies in their infancy. The interest attached to the loan, are both paid back in instalments over the life of the loan that is predetermined in the contract. Since it is such a popular form of financing, there are several sources that offer this plan. Apart from commercial banks, governments can sponsor such loans, small business investment companies and private lenders. The differentiating factors can be the interest rates, general conditions and availability. It is always a good idea to get as many estimates from as many sources as possible and make an educated choice that is the optimal one.

It is necessary for the vast majority of businesses to seek out different sources of financing in order to make something happen. Very rarely can a business rely solely on internal capital without going through all the hassles of getting external help. Especially in the very early stages of business operation, as later on down the road, businesses can start financing and investing out of their profit margins. With these plans, it will be a little bit easier to get your business off the ground and on to new endeavours.

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