Financing business growth

Generally speaking, the biggest hurdle in financing a business is finding the money to get it started. The next big financial challenge for most businesses is finding an effective way to finance growth.

Growth can come in many different forms such as a new location, a bigger office, more equipment, more capacity, increased inventory, more staff, new products and/or services etc. Further, each business tends to be in a unique financial situation in terms of what different types of funding they can qualify for, which makes matching financing to growth requirements a complicated process.

The most simplistic way to do this would be to get a large loan or line of credit to cover all the expenses. However the current lending environment, the growing business probably won’t access to a loan large enough to meet their needs. The savvy business owner may have to look to a combination of financing to properly expand.

Besides traditional loans, equipment leasing can be an affective method of financing expansion. Although equipment leasing usually comes with a higher cost of funds compared to a traditional loan, the rent payment to the leasing company is completely tax deductible, and that alone may offset some of the additional cost. However this does you no good if you don’t need equipment.

If loans are not accessible as is the case for many businesses currently, an increasingly popular alternative financing option is accounts receivable factoring. This would be a great option for businesses that have a large base of receivables as factoring is a very affective way of financing growth. It provides funding based on the size of your receivables, which means the amount of financing you receive will increase as your sales increase; affectively growing with your business.

Purchase order financing another great way to finance growth. It provides an advance on all the funding necessary to fulfill an order. This provides a way to handle the large orders that are difficult or simply impossible to finance internally. PO financing is a great way to increase your business’s capacity, revenue and profits thus an affective financial tool for growth.

A merchant cash advance is another financial tool that can be affective for financing growth. It works by providing a lump sum advance on future credit card sales. The advance gets paid back through an automatic deduction of a percentage of your credit card sales. It works great for business that don’t extend 30 day terms and consequently don’t have access to factoring.

A sale-leaseback is another way to get a lump sum of money. It works by selling an asset you own, and leasing it back from the financing company. This allows you to receive money based on its value and maintain possession and use of the asset.

All of the alternative financing models listed above are relatively easy to qualify for as long as your business fits the lending model. However it is always wise to investigate the financing partner to ensure that the arrangement is ideal. Another important note is to consider all available financing options and their different costs and advantages before deciding on which financial tool or tools to use.