Starting a small business can be one of the most exhilarating experiences a person can undertake, which is in part due to the risks and challenges that stand before you. Once you’ve made the decision to tackle the challenge and begin your journey, it becomes quite urgent for you to be able to get your hands on a lot of capital. Unfortunately, not many people share the same enthusiasm that you have with your business and won’t be eager to hand over their funds to help you out. But why is it easier for big businesses to receive massive loans, whilst your smaller loan is mulled over by the big banks?
Bigger businesses are less likely to fail
How has a business grown big? By being successful. Successful businesses generally equal a healthy cash flow. With clear profit results, it’s a lot easier to convince a bank to lend you money. It’s like going to a horse race and having an untried two-year-old take on the defending champ. If you were a gambler, you would go with the tried and tested choice. At the end of the day, as exciting as a new talent is, potential doesn’t mean bills will be paid on time.
One of the problems that is completely out of your hands is the cost associated with a loan. Some of the costs are the same, whether you are borrowing a hundred thousand or a million dollars. Because of this, obviously a bank’s margin will be higher on the larger loan. This one is completely out of your hands, and we wouldn’t recommend you borrow more just to appease your bank.
It is much harder to obtain a small business’s records for analysis. This could be because they haven’t been well kept, aren’t available to the public or aren’t exceptionally flattering. Without a certain degree of transparency, you are again deemed to be an excessive risk, simply because the money lender doesn’t know what it’s getting itself into. This factor you can control, but it may not help you if the numbers aren’t on your side either.
Even if you do manage to secure a loan, the process is nowhere near as quick as a larger competitor. This is why more and more small businesses are looking to marketplace lending, peer to peer lending or debt crowdfunding as their new solution.
Leveraging invoice financing to fuel business growth
Cash flow can make or break a small business. You don’t have hundreds of other customers to fall back on to pay their invoice and get you out of a tight spot. You need all of your customers to be pulling their weight, and paying their invoices as they become due. That’s in an ideal world, and more often than not, the business world is not ideal. You have to be ahead of the game and think outside of the box to get your hands on your hard earned money to grow to your full potential. This is where debtor or invoice financing comes into its’ own.
You can rely on your sales
Big businesses gain their security through their assets. Their multimillion dollar property would be the most obvious example. You don’t have that (yet) so your sales really are the life blood of your business. Relying on your own hard work, rather than a non-current asset will grow your business at the appropriate rate for you.
Your business grows with you
When businesses survive the initial startup, they can fail in the growth stage. Success can allow a bank to lend you too much money, which can prove to be too much of a temptation for some. Invoice financing controls the growth at which you are expanding. You don’t have to predict growth; you can only expand as your bank account does. Invoice financing is a much safer option; especially if this is the first time you’ve created a startup. Invoice financing doesn’t mean you have to give away your customers. Your customers will realise that you are funding your business and still you as the supplier. A good invoice financing solution will result in improved customer relations as there is more communication with them by you and the invoice financing solution provider.
You don’t have to offer discounts
A strategy many businesses utilise to guarantee early payment is a discount. You are essentially underselling your product in exchange for an earlier return. With debtor financing or invoice financing, you’re guaranteed the cash flow, and can now afford yourself the luxury of time to receive full payment. This way you are not undervaluing yourself, and receiving the full payment which is rightfully yours.
This one is possibly the reason that will allow you to sleep a lot easier at night. Your personal property won’t have to be used to help finance your tougher times. If you’ve had an exceptionally busy month, which will take a few months to recover all of your payments, two months can be a very long time for your business to live on promises. Instead of having to delve into your own pockets, your invoice financing will leap to your rescue, and ensure you live to fight another day.
Don’t go for a quick solution
When you start looking for invoice or debtor financing, what you are essentially seeking is someone to buy your invoices with ease, without administration hurdles and most importantly at a competitive price. You may find that there are many different solutions that may look cheap at the time of offering, but when you take into account service fees, selection criteria and the short-term nature of their financing, you will find there are only a few offerings that make sense. What makes marketplace lending or peer to peer lending solution of debtor or invoice financing attractive is that you set the term, the rate you are willing to pay and also there are no hidden fees. Your investors are your peers, not some large multinational that may leave you when the times change or they have a restructure or strategy rethink. With marketplace lending you get to say these are my terms and invest now to take advantage of a great opportunity, not what are your terms and can you please lend. More importantly, marketplace lending sets you up for the future because you build an investor base that supports you in your business.
The biggest downfall of many small businesses is that when they start out, they have only a few people doing tasks or they do it all themselves, but as they grow the administration tasks expand and leave these people bogged down with administration tasks. This is where Marketlend, a well establish marketplace lender also known as a peer to peer lender, not only assists you with the improved cashflow with debtor financing or invoice financing, but also handles all the collections, payments and legal processes.