When looking for financing options, many small and medium-sized businesses SMEs find themselves with few options. This is because they are often not able to meet the eligibility criteria of most banks and other financial institutions as they lack collateral in form of physical assets and require institutions that are able to meet their dynamic and changing needs.
With the rise of Small and Medium-sized businesses SMEs, however, financing has also slowly begun to grow. These options are now on the rise to support the need for capital by many businesses and have been on the rise especially in Africa. Some of these financing options include; asset financing, invoice financing and other forms of loans.
To get the best for your business, Care must be taken in order to analyse the effects of the risks taken against the projected profit margins so as to make a profit and ensure growth. The following are some of the tactics you can use as a business to find profitable and less risky financing options.
- Find the Right Option
Not all available options will fit the needs of your business, finding the right financing option will not only make thing easier but also maximize your profit margins giving your business an opportunity to grow and make a profit.
This involves looking at the objectives of the business and the exact need of the finance. Regular fixed and unavoidable expenses including paying employee wages, suppliers, and daily expenses are better served with long-term non-security loans. This includes invoice factoring or invoice financing.
To find the right option, the business also needs to evaluate the available options, calculate the cost as well as the expenses involved in terms of interest and the profit margins involved. This will result in the business picking the most profitable means of finance as well as keeping the cost at bay.
- Never Chase A Deal
Chasing deals always never works. This results in decisions being made without careful thought and analysis. This might result in making wrong decisions that might cost the business in the future. Making decisions hastily can cost your business or even cause it to fail all the same. To get the best financing option a business should always strive to check all the available options and carefully check what will work and what will not.
- Calculate Your Profits Upfront
Calculating your profits before getting into a financing option will be of benefit as it allows the business to check at its projections and see what options will fit. The cash flow of the business needs to accommodate the expenditure the financing options will require, a logbook loan, for example, will add some monthly costs that the business needs to calculate or estimate. When this is taken into consideration the business will then check the most suitable option that will not strain it.
- Develop a Plan B
When getting into a financing option the business should also consider uncertainties. These might be getting delays in its payments or suffering natural disasters. For this, the business should always make sure to get other means of financing or save some liquid assets in order to cater for this. When looking for financing options, consider setting up some money to cater for emergencies or situations where you might have to go back to your pocket. A logbook loan can cost you thaw value of your car if you are relying solely on your customer to make payments for you to get the monthly payments. This might be a big disadvantage.
- Always Under Promise but Over Deliver
When working with creditors, never overestimate the predictability of the future. Always promise what you can deliver to avoid breaching the contract. Overpromising may help you get a quick deal but may end up costing you other big financings in the future.
When working with credit, make sure that you give your business the chance to survive in case things don’t work right too. This is by giving your business a lighter workload. When sourcing for funds, for example, do not take loans you cannot pay to off the required time. Small and sustainable loans also will help you learn the cash flow when using financing and scale your business to the next level.
- Project Growth
When looking for funds, make sure that you have a clear picture of how the financing options will take your business to the next level. If for example the profit acquired will only be used to cater for the cost and expenses thereafter, the deal is not worth taking. The option, however, should have the promise of extending or expanding your business or making a profit, to say the least.
- Clarity with No Fear
When you doubt your business investors too cannot believe in you. This means you should approach investors boldly and with the determination of securing a deal for your business. Confidence not only builds your morale but also keeps you focused on making the required efforts to enable your business to prosper. This, in the long run, will enable your business to grow.
- Consider a Financial Plan
When looking for a financial solution to your business, creating a business plan increases the chances of getting interest as financiers always believe that you are organized and will put their money in the right channels. This also helps you see the exact amount you need and the options you have. A financial plan can also be of great help when sourcing or venture capitalists as they create a platform on which you can show evidence or potential of the growth of your business.
- Integrity Counts
When you are honest with your creditors, there is a lot that becomes easier. When you create trust and confidence, the creditor also understands when your business is working and when you are on a tight budget. This makes an understanding that can help in your public image as well as creditworthiness.
- Play the Number Game Right
When sourcing for funds, creditors will likely ask questions such as the Customer Acquisition Cost (CAC), and the cost of production as well as the profits margins. Knowing this gives them the sense of direction on your business and evidence on which the net worth of your business can be calculated on. This might be very instrumental when looking for finance options form venture capitalists.
Although financing is challenging for Small and Medium-sized businesses SMEs, getting the right min-set and developing trust really plays a major role in developing a good deal. Working with companies in the long term also boosts confidence as the business gets the advantage of growth and displays what it can do and how it can achieve it.