There may come a time when your business needs money to grow or fund new operations. But not all businesses will have these funds in their bank account to make this possible, especially if they do not have any credit history. So how are businesses supposed to obtain funds if they don’t have them on hand? The answer is simple: they go to a financier and apply for financing.
Thanks to financing options, businesses can fund their operations and pay for them in affordable installments instead of paying outright.
There are multiple ways to receive financing, and each has its benefits and caveats. Here are a few financing options your business should consider if it needs additional funds.
Use an All-in-One Payments Platform
One of the best ways to receive funding is to use an all-in-one payments platform. An all-in-one payments company is a company that can service you when it comes to nearly any monetary aspect of your business, from financing to payment processing to setting up electronic billing. When merchants use an all-in-one payments platform, buyers experience significant advantages.
Companies that have applied for financing through the all-in-one payments platform Currency have found the process to be fast and easy. If their finance application was accepted, Currency deposited the funds into their account within 24 to 36 hours of applying. This is far faster than the typical 5-7 days it would take to receive funds if applying for financing through a bank. Currency offers companies loans in amounts up to 500k and offers flexible payment terms for the first 72 months. After you receive the funds in your bank account, you will be responsible for paying back the borrowed funds over a specified period of time with interest tacked on to the borrowed amount.
“[All in one payment platforms give] sellers the opportunity to offer a wide variety of payment options, which includes financing at the point of sale.” Says Joshua Reason, Senior Director of Growth at Currency. “[Financing] gives buyers the much-needed purchase power to buy big-ticket items.”
If it were not for financing, some consumers would not be able to afford the items they need. However, the increased purchasing power they receive through a finance plan allows them to buy items and pay for them in affordable installments instead of outright. Research conducted by Forrester has found that offering finance plans at a point-of-sale system resulted in a 5.7% increase in a merchant’s total sales over a three year period. The research also found that offering finance options led to a 75% increase in the average purchase value at a store.
Pros and Cons
Using an all-in-one payments platform is fast and flexible. When you use an all-in-one payments platform, you can receive several other services that your business might need. For instance, payment processing and eCommerce integration services. You would have to pay for these features individually otherwise, but you can reduce these costs by consolidating your service contracts with one company.
On the downside, you will need to have a credit history to borrow from an all-in-one payments platform. This makes this finance option less feasible for start-ups and businesses who do not have an extensive credit history. This is because most companies will need proof that you have the means or a history that shows that you can borrow and pay back funds.
Apply for a Bank Loan
If applying for financing through an all-in-one payments company is not feasible for your business, then a bank loan might be your next best option. Bank loans are one of the most common ways for businesses with credit history to receive financing. When you receive financing through a bank loan, your company can fund its operations as soon as its finance application is accepted by the bank (typically 5-7 days). Afterward, your business will be responsible for paying back the money in affordable installments with interest tacked on to the amount borrowed.
On the downside, there are more costs associated with bank loans than just the interest that is tacked on. Bank loans come with arrangement fees, insurance, and covenant compliance costs. And if you are a new business that does not have any credit history, it is difficult for you to receive the funds you need through a bank loan. A bank will want to see a history that proves your business can borrow money and pay it back on time.
However, if you are an established business that has a credit history, you might want to consider applying for a bank loan the next time that you need funding.
Apply for a Loan From a Specialty Finance Company
However, if financing through an all-in-one payments company or applying for a bank loan is not feasible, then there are other non-bank lenders your business can turn to for financing – for instance, specialty finance companies.
Specialty finance is essentially any financing activity that occurs outside the standard banking system. Firms that focus on specialty finance are non-bank lenders that give loans to consumers and small-to-midsize businesses that cannot find financing options elsewhere.
A few examples of specialty finance companies are credit cards providers, mortgage companies, commercial real estate lenders, leasing companies, and business development companies.
One of the advantages of obtaining a loan through a specialty finance company is you are more likely to receive financing than you would be through a bank. This is a great alternative to a bank loan if you are a business that does not have an extensive credit history. Banks often have strict regulations and underwriting that prevent them from loaning to people in specific credit windows. However, specialty finance companies can look at each potential borrower’s situation more thoroughly and create a custom lending agreement.
On the downside, it is not unusual for the rates to vary from lender to lender. This is because the lending agreement will be specific to your financial situation, the risk you carry as a borrower, and your ability to pay the company back.
Do Research Before You Make a Decision
Banks, specialty finance companies, and all-in-one payments platforms are only three of the many options for obtaining financing. Financing enables you to fund growth opportunities that your company would not be able to make otherwise. But, before you make a business decision that will have a significant impact on your bottom line, it is important to research each available finance option to determine which is the best fit for you.