How To Choose The Right Business Finance Option For Your Business

how to choose right business finance option business funding

If your business is stuck in a rut because of cash flow issues, or you’ve got big plans for growth but not the funds to implement them, business finance can be the best way to give your business a boost. 

However, there are lots of different types of business finance. So before you can reap the benefits of extra funding, you need to decide which finance option is right for you. Here are some factors to consider to help you find the best finance solution for your business. 

Equity Vs Debt 

Business finance solutions can be hugely beneficial to your business, but they do come at a cost. And there are two main types of costs when it comes to financing: equity and debt. 

With equity finance, investors offer funds in exchange for a percentage stake in your business. This option can be advantageous if you want to bring on an expert — someone who can help you progress and grow. 

But if you don’t want to give up a percentage of your company, debt finance may be a better alternative. Rather than selling equity for funds, you might borrow from a bank or work with an alternative finance provider and pay a fee or interest on funds instead. 

Types of debt finance include loans, overdrafts, leasing agreements and asset-based finance. Alternative finance solutions that provide funding based on accounts receivables also fall under the broad category of debt finance. For example, purchase order finance and invoice finance are both forms of debt finance -- rather than selling equity to an investor, a finance provider will give you a cash advance on unpaid invoices or orders in exchange for a percentage fee. 

What Do You Need Funds For? 

Before considering finance, think about why you need finance - is it for working capital, for growth or for cash flow? A clear plan is important and can also help you decide which type of finance is right for your business. 

Several solutions can boost your business. Purpose-built finance solutions such as invoice, supplier and order finance may be most appropriate for your business. The best solution will depend on your business’ requirements. 

For example, if you need funds to cover the cost of one or more customer orders, purchase order finance could solve your problems. If there are a few different reasons why you need funds, a hybrid finance solution might be your best solution. 

Do You Need Flexible Finance? 

Some types of finance, such as bank loans, involve rigid contracts. There's no room for flexibility when it comes to the loan amount or the repayment structure. These contracts can also restrict you from entering into any other financial agreements. 

But you can still find flexible finance from alternative finance providers. And often these forms of finance are more suited to the fast-paced and dynamic business world. Flexible finance solutions give you the freedom to adjust different aspects of your finance, such as the way you manage your business’ finance requirements. You may also be able to access higher levels of finance further down the line. 

Speed: How Quickly Do You Need Finance? 

If you want to seize a time-sensitive opportunity, or you’re experiencing cash flow trouble, you might need fast access to funds. If speed is one of your priorities, this rules out some finance options. Bank loans, for example, can involve an application process that can take a lot of time. So even if you’re approved, you may have to wait for your funds. 

If you’re looking for timely funds, alternative lenders are your best bet. Usually, alternative finance only takes a few days to apply for. And the finance providers will decide quickly whether to approve or reject your application. 

What Type Of Finance Do You Qualify For? 

If you have an impressive credit score and years of well-kept books, you’ll have a range of finance options at your fingertips. But if your credit score is a little low, or you’re a new business, you may have a limited choice when it comes to eligible finance solutions. 

In this case, you may wish to consider alternative finance providers who will look at more than just your credit score. Alternative finance providers will often consider your business’s performance as a whole. They’ll judge your application based on a range of factors, including your revenue, customers and current orders. 

For example, you could consider invoice finance — a finance solution that releases finance from your invoices and offers funds based on your accounts receivables.

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