How to find the right business finance options
Since the 2008 financial crisis, banks have been reluctant to lend to small businesses. But many firms will still go straight to their bank when they need finance, and won’t look at any other options.
Technology has enabled accountants to take on a more advisory role, by freeing up time they used to spend on administrative activities.
New tech also means accountants can predict their clients’ financial needs even faster, using cash-flow tracking, budgeting and forecasting.
Suitable business finance options
But since the business finance market is quite varied, it can still be difficult to find the most suitable funding option for your client. Here are a few tips for helping clients find the right business finance. Identify individual need
To get an idea of what type of finance is needed, you can ask your client what the funding is for. By specifying the purpose you’ll get an idea of what aspects are the most important. Speed? Flexibility? Something for the long term? Funding for equipment? Or even a loan to pay a tax bill?
There are finance products specifically designed for these kinds of issues. For example, if your client needs a fast loan to bridge an unexpected cash-flow gap, a revolving credit facility may be what they’re looking for.
It’s similar to a business overdraft, so your client can draw down funds as and when needed, and this type of finance is usually quick to set up too.
Look at the business structure
Another thing to consider is how your client’s business is structured. Do they invoice their customers? Are they trading overseas? Do they process payments with a card machine?
These are all scenarios where the business finance market has found ways to tackle the problem at the source. Instead of a business loan, your client could use invoice finance to unlock cash from unpaid invoices.
Trade finance, on the other hand, could help your client pay their suppliers and close the payment gap at the start of the trading cycle. And if they use a card machine, a merchant cash advance could be the right way to get funding.
Different business loans
The point is, there are lots of options out there that many business owners don’t know about.
Many will look at a few different business loans, compare rates, and go for the cheapest one — but there are many more products out there that might be a better fit.
You should also bear in mind that with all these niche forms of alternative finance, APR isn’t always the best indicator of overall costs.
For example, a tax bill loan might be for just three months, which means the yearly interest rate isn’t very useful, and there are various other flexible products which vary in cost depending on how they’re used.
Get the documents ready
When assessing your client’s eligibility, lenders will look at trading history, business bank statements, profit margin, annual turnover, and credit rating.
By helping your client prepare all the documents, you can sometimes significantly accelerate the application process, which could lead to a quicker approval.
Fundamentally, if the business’s financials are neat and tidy, it makes it easier for the underwriter to see the big picture, and makes it less likely that you’ll waste time sending over more information at a later stage.
These are just a few of the ways you can support your client on the lookout for finance. If you need assistance with the search, or want to see what’s available, Funding Options can help.
Funding Options will be at Accountex 2018, stand 776, along with 9 Spokes.
