When it comes to financing for your small business, it’s rare that one option will suit all of your business financing needs. To get the best funding possible for your business, a smart financing combination can often be the best route.
If you interested in exploring invoice financing, also known as accounts receivable financing, you might need another type of business loan to cover your bases.
It can be tricky figuring out which financing combo is best. Depending on your company’s industry and financial situation, one of the following four could work well for you and your business.
1. Line of credit and invoice financing
Invoice financing is a great option if you have cash trapped in unpaid invoices. It’s suitable when you have outstanding accounts receivables and need cash to run the business.
Note that the lender will charge a fee, typically around 3% plus a percentage each week your customer doesn’t pay up. But you will get 50-90% of the total invoice amount upfront (with the remaining paid upon retrieval, minus fees).
Similarly, a line of credit is one of the most common financing tools small businesses use to get money quickly. It functions much like a credit card, except you get easy access to cash. You get a set limit and take funds as needed. You only pay interest on what you use, which makes it great for short-term capital needs. For instance, if you’re making a seasonal inventory purchase and require extra cash, a line of credit is a great way to fund that.
Now, when you combine a line of credit with invoice financing, you can put your business in a great position to never be short of money. As Mitch LaTorre, account executive lead at BlueVine, notes, “A line of credit and invoice financing create a very flexible and effective financing combination that would ensure steady cash flow for your business.”
2. Term loan and invoice financing
For centuries, entrepreneurs have walked into banks looking for a term loan to finance their business venture. Today, traditional term loans through banks and the U.S. Small Business Administration continue to offer the best rates and terms. That makes term loans one of the best long-term funding options.
However, the process of getting a term loan can take a while. Applications also routinely get denied. Luckily, alternative lenders have opened their doors online, offering a faster application process and sometimes less stringent requirements for approval. If you go with an alternative lender, make sure the rates and terms are favorable for your business.
Now, since a term loan presents you with a lump sum of cash to be repaid over a fixed period, it’s great for things like business expansion, hiring new employees, or real estate. It’s a long-term financing solution that combines nicely with invoice financing, which can be used to keep up with short-term expenses, such as payroll, electricity bills, and debt payments. In this sense, a term loan and invoice financing combo takes care of you in the short and long term.
3. Personal loan for business and invoice financing
You’ve been told to separate business and personal finances. But considering that personal loans often have lower interest rates than business loans, it may be a good financing choice for your company. Also, for young businesses or those that don’t meet credit requirements, a personal loan for business could be a good alternative when business loans can’t be obtained.
If you get approved for a business loan as well, compare it with your personal loan. Take the personal loan if it’s a lot more affordable (which it could be if your personal credit is strong). But if the personal loan is only cheaper by a point or two, go with the business loan, as this will keep you from mixing business and personal finances. Personal loans show up on your personal credit history, after all.
Invoice financing mixes well with a personal loan for business because it can fill the void when customers don’t pay on time, while a personal loan can be used for a variety of short- and long-term capital expenses. Invoice financing provides a reliable flow of cash, ensuring your business stays alive, even if customers don’t always pay on time.
The personal loan, which can typically get you up to £25,000, gives you money to handle daily operating expenses and fund bigger aspects of the operation, such as marketing campaigns.
4. Equipment financing and invoice financing
Combining equipment financing with invoice financing makes sense because the two types of financing serve two very different yet common needs. Most businesses require specific equipment to run the operation. Most also encounter clients that don’t pay promptly.
As Timothy Kelly, founder of ForexTV, describes, “equipment financing is a specific type of small business loans designed for purchases of high ticket items.” Such items include vehicles, computers, office furniture, and heavy-duty machinery, and other necessary equipment.
When combined, you not only protect your business from short-term cash flow squeezes, you also ensure you have the cash and equipment to expand at the pace you want. This way, your business can achieve the revenue growth it’s capable of.
Use invoice financing and a business loan to your advantage
All types of business loans have their advantages and disadvantages. Consider that 64% of small businesses have unpaid invoices that are at least two months old, and it’s easy to see why invoice financing can offer businesses a way to stay cash-flow positive.
When invoice financing is combined with other loans, like the ones listed here, you can solve most of your capital needs. And you can focus on driving your business forward.