Banking Finance

It can be very difficult for businesses with less than two years of operation to obtain business credit. With the vast majority of businesses failing within the first two years of operations banks are not aggressive with lending monies to new businesses. In fact in the United States 90% of small businesses cannot obtain financing from a traditional bank. All businesses, at one time or another, need to access operating capital to grow or to overcome seasonal revenue fluctuations. It is no surprise that many businesses fail due to cash flow issues. If you can’t get financing from a traditional bank where does the money come from? A lot of businesses owners will tap into personal savings, put there home ownership at risk or get family and friends to invest. This does not have to be the case.

There are ways to start or operate new businesses and access working capital without a bank loan, personal investment or the investment from family and friends. These financing methods include acquiring equipment with a lease, merchant cash advances, invoice factoring, and purchase order financing.

If a new business is unable to get the capital to purchase equipment they can lease. Equipment leasing is a viable way of securing much needed equipment, computers or vehicles. There are leasing programs available for start up companies and for individuals with marginal credit. Leasing is extremely flexible and payment plans can be tailored to protect your cash flow. If your credit rating is strong you can lease equipment with a 90day deferral payment so that you can use the equipment to finish the job before you even need to make a payment. Leasing equipment generally requires a lower credit score than borrowing money for the equipment.

One of the toughest industries to secure a small business loan is for a new business operating in retail or as a restaurant. These types of companies usually have very little in the way of assets to secure financing and are classed as higher risk. Both restaurants and retail locations accept credit cards. This provides for a method of accessing unsecured cash called a merchant cash advance. This is not a loan but rather a sale of future credit card receipts at a discounted rate.

If a new business receives a large purchase order they can use that purchase order to obtain the funding needed to purchase the supplies to fill the contract. Purchase order financing can provide 100% of the funding needed to get your product out the door. Typically this type of financing would be for import/export or distribution companies where a product is purchased and resold at a profit, however some lenders will look at covering labor and associated costs. It all depends on how credit worthy the customer is and what type of industry they are in.

If you supply your product or service to other businesses and they don’t pay you for 30 to 90 days it can become almost impossible to manage your cash flows. Once you add in growth to this situation cash flow management becomes even more difficult. Due to the delayed payments, your costs increase faster than the revenues coming in. Lets look at a simple example. You own a staffing agency and you land a new large customer that will double your sales. This new customer will pay you 60 days after your temps complete the work. Your sales just doubled and so did your costs. Payroll can’t wait for 60 days, because your employees need to get paid on time or they will go elsewhere. Cost immediately double but

you do not see an increase in revenue for 60 days. This is a major hit in your cash flows and you need access to working capital immediately or you won’t be able to make payroll. The solution to your problem could be in factoring the invoices. With invoice factoring you can receive cash within 24 hours of your temps completing their work. Now there are no cash flow issues. Factoring is easy to qualify for, if your customer has good credit, and set up correctly it can be a tremendous cash flow tool.

At one time or another almost all companies will need to access additional working capital to enable growth or to survive revenue fluctuations. For most small business owners this may seem like an impossible task because banks turn down the majority of their financial requests. It is extremely important for business owners to know where to turn when a bank says no. Their company’s survival depends on it.

No business ever started with more than enough funds. With this in mind, every business out there needs funding. Business Finance is used to obtain assets which will help your business make more money, to purchase capital items, to increase holdings of trading stock and supplies, fund research and development and expand distribution and develop new markets.

To find the right business finance provider for your business, you should know the types of finances available for you.

Debt Financing

Borrowing from banks or financial institutions, provided specific terms and conditions for repayment is called debt financing. Businesses who are into debt financing accept a direct obligation to repay the funds within a specific period of time. Here are the sources for debt financing:

Friends and relatives – advantage is that they are likely to give flexible terms of repayment than other lenders. They may be willing to invest more on your business and try to become involved in management. It is advisable that you create an agreement to avoid future misunderstandings.

Banks are the sources of most businesses finance. There are many types of banks but generally they exist to accept loans and deposits. They are very cautious when making loans so it may be hard your young businesses to have banks as their source.

Credit Unions are common providers of business finance. They intend to help members of a group, like members of a labor union. They give funds with more favourable terms than banks. However, the amount of money they can lend you is usually not as large.

Finance companies are another option. However, they charge higher interest rates than banks and credit unions; but they do approve more business finance request.

Equity Finance

Investors provide funds in exchange of shares in your business. They provide total risk capital and have no security to call if your business does not earn as expected. This type of business finance may be sourced through the ff:

Joint Venture – two or more companies agree to share capital and resources, involving financial support and sharing of risks. This arrangement brings efficient commercialization, acceleration of revenue growth, and expansion of domestic markets.

Venture Capital Funds – business finance providers who are often generous usually think that they will get big returns in a short span of time. They offer share capital. They tend to invest in risky ventures who find it difficult to get a loan from a bank. Advantages would be substantial amount of capital and no repayments to worry about. Disadvantages would be a sacrifice of large part of your company and will not be viable for small and medium businesses. They usually invest over ?1M .

Business Angels – these are wealthy individuals who invest in groups and expect high return for their investment. They are willing to be a business finance provider for small business, giving help and sharing their first-hand experiences. You may want to contact the British Business Angels Association for business angel networks.

The Internet has become in incredible earning tool, especially for small businesses. While there was a time when the international trade finance market was limited to corporations with big budgets that could advertise internationally, the Internet has made it possible for small businesses to go mainstream with a simple click. It has become so popular that there are specialty agencies and branches of financial institutions to assist in this very process.

For the small business that is having issues with finances to take advantage of this new niche that is suddenly available, there is government funding that can be used if they qualify. Online searches will usually turn up a wealth of information and then it is a matter of sifting through it to find what will work. If there are questions, contacting the agency directly is always the best way to make sure that the right information is obtained.

Most of these programs can direct the small business owner to the proper contact or financial institution that can help secure the funding that is needed. These specialists are versed in the latest international laws and will set the small business owner up for success. Because they have people in just about every country, they are familiar with laws that someone strictly based in the United States may not be fully versed on yet.

Most websites have a FAQ section that will enable the user to ask questions. There may also be a public forum where questions can be asked and then answered by other users that have already gone through the process. Some of the more popular sites will also have guides or how to manuals that can be easily downloaded for a more thorough look.

International trade finance is a niche of business that is filled with quite a variety of opportunities. Because there are so many different areas to explore, it can be a bit overwhelming at first, but with the right guidance, the answers and direction will be found. Whether it is through a help menu or an actual advisor, you can get help setting up everything from financing to legalities that must be completed before the business is opened.

Filling out the paperwork and forms is easy. Most of the time, it can be done right online. For the business owner that is skeptical of having their information put out on the internet, there is also the option to download the files and fill them out by hand. Once completed, they can be mailed into the proper agency.

While the concentration of this has been on small business owners, the same opportunities are available for large corporations that are looking to go global. Regardless of the size of the business, international finance trade laws are run through the same agencies. Where small businesses are usually limited in staff, many larger corporations will have specialists that handle all of these technicalities for them.

While the Internet is a great place to do business, it is also a great place to find information. Instead of rummaging through the phone book and trying to get information from government offices that are going to put you on hold for hours, use the Internet as the tool that it is. There is a wealth of information at your fingertips and it will not be long before you become an international trade finance expert.