Figuring out a financial path to the business growth you hope to see in the next couple years can be tough, especially if you’re running a business that has faced a couple recent cash flow challenges. Often, even when a company is financially healthy, the schedule of incoming payments winds up making a deep capital reserve necessary if you’re going to preserve your outgoing payment timing. When you rely on your own reserve cash for that capital, it can be tough to find money for down payments on new equipment or even a bigger building. So what do you do? Often, the best option is financing, and many businesses choose asset-based options for financing expansion, for a variety of reasons.
Controlled Capital Costs
The cost of financing is often the biggest concern, especially if you’re going to be financing for cash flow so you can manage a long-term project like business growth. Asset-based options control the cost of the loan by using the value of your existing assets as the basis for the loan, so you can get more capital at once without paying the exorbitant rates that come with unsecured short-term cash advance opportunities. When it comes to asset-based loans that are structured like traditional amortizing loans, using the equity in your existing equipment or inventory is an easy way to get the lower interest rates associated with unsecured debt.
Alternative Financing Options
There are a lot of ways to finance with your business assets that don’t look like traditional loans. While many of them do cost more than inventory or equity-based loans, they also come with additional opportunities to streamline your business. Take invoice financing, for example. Instead of taking out a loan, you can get an advance on the money owed you by your customers, often without recourse if the customer fails to pay. It’s potentially more expensive than a loan if the customer pays late because there are penalty fees associated with late payments, but it can also be less expensive if your customers are on time or even early and you have an ongoing relationship with the financing company. This cash advance works like a loan in a lot of ways, except you’re not the one who has to repay it.
To maximize the available capital you have for business growth, it might be a good idea to use a lender who can formulate an asset-based loan that uses all your business assets, from inventory to invoices and equipment equity. This allows you to work with a large sum of capital as you balance the supply costs of a higher volume of business and shop for the resource expansions needed to sustain your higher level of output as a new normal for your company.