Financing your personal life may be easy to manage and you know what options work best for you. For example, you might prefer payday loans when faced with an emergency expense, or you might like to extend your overdraft if you need it. However, financing your business can be a whole different story. There are so many different options, each with its own benefits and you might not know where to start. If you want to find out, keep reading, and let’s explore which finance could be right for your business.
Consider The Amount
The first thing you need to consider is how much finance you actually need. This can be a determining factor in which type you go for, as different options will provide you with higher or lower amounts. Spend some time deciding how much finance you’ll need and what you will spend it on. This way you’ll be better prepared for any applications as well.
Debt Or Equity
There are two main types of finance, debt, and equity. It’s important you know the difference and figure out which you would prefer so you can make the right choice for you. Debt finance is where you borrow money from a lender and pay it back, typically with interest. Equity financing is where you give shares of your business to an investor in exchange for their finance. Some people prefer this option as it allows you to keep your business debt at a minimum, but it does mean you lose some ownership of your business. Weigh up the pros and cons of both so you can decide which type of finance will benefit you more.
If you decide to go for debt finance, your first thought might be a loan. However, there is more to consider than just the amount you wish to borrow. Shop around between lenders so you can find the best agreement for you, as different lenders will have different terms. You’ll also want to figure out if you want a long term or a short term loan. Long term loans may allow you to borrow more and have lower monthly payments. However, in the long run, you might end up paying more interest over the agreed term. Your other option is a short term business loan. These can be useful if you’re just wanting to inject some cash into your business, not get it up and running. Short term loans typically lend less finance and might have higher repayments or interest rates. Interest rates and repayments all vary from lender to lender, so it’s best to consider your options before committing.
Credit Cards And Overdrafts
If you don’t want a loan, but instead want a way to boost your cash flow, you might want to look at a business credit card or overdraft. A credit card can be great for daily expenditures, and you can simply pay it all off at the end of the month. This can make it easier to manage your business budget as you’ll be able to include it in your outgoings in one go, rather than trying to keep track of every little spend. Alternatively, you might prefer an overdraft on your business account. This is another short term cash flow solution that allows you the freedom to only spend as much as you need. Loans tend to have set repayments and interest, but an overdraft only charges you interest on the amount you’ve used. Many businesses prefer this method of finance as you aren’t paying for money you haven’t yet used.
There isn’t one type of finance that works for all businesses. It all depends on how much you want to borrow and what method you prefer. Having a lump sum from a loan might be most beneficial to a small business that is trying to become established. But, for a slightly larger business, a credit card might prove more useful as they don’t need a large amount of finance in one go. Instead, you can spend as and when you need and only be charged for what you’ve actually spent over the month. Spend some time thinking about what will work best for your business and then take a look at what different lenders can offer you. With a clear idea in your head of what you want, you’ll soon be well on your way to financing your business.