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Choosing the right funding option for your business

By December 11, 2015 No Comments

Not every business has an unlimited supply of cash reserves which is where the importance of having a good relationship with your bank can be crucial. This relationship can help in advancing finance to develop your business as the bank will understand your business. Your business adviser in your bank will offer their opinion on the best funding option for your businesses growth or project as some are more suitable than others. Generally banks will provide this advice for free.

1. Overdraft

An overdraft may be an appropriate funding option if your business is seasonal or has cash flow issues. If you can show the bank that your business’ main months of turnover will carry your business for the rest of the year then it will encourage them to assist you in lean times. On the other hand if you have a short or unexpected cash flow issue the bank could help too. This might arise if a customer is slow to pay against an invoice.

It is important to have your homework complete so that the bank can trust you. By showing them a forecast chart with your projected income minus your cash out it can help to explain the expected shortfall. The bank will need to see that you have a plan to exit the overdraft facility in the agreed time scale.

2. Loan

Loans are another funding option which you may look to if you’re planning on expanding your business or acquiring new and more modern equipment. How you plan on repaying the loan will be vital in order to secure the best terms available on repayments. This includes the monthly sum, interest rate, and term duration. Even with a good bank relationship and good credit rating, every loan is treated individually and so you will have to demonstrate the following:

  • The business is financially sound or your business idea has the potential to generate significant income
  • The experience you and your team have managing the business well and show you’ll be able to manage expansion
  • The loan has a specific function and will be repaid within the agreed time frame
  • You can put up security against the loan if the bank asks for it

These are just two options available when looking for finance for your business. Your business adviser will be able to recommend the best funding option for your business. If you don’t have a bank then you can read our post on choosing the right bank for your business. Alternatively you can discover our bank relationships guide which will cover all of these topics.