Business owners have many means to get financing to take their business to the next level. Choosing the best depends on how long you've been in business, the amount you need to borrow, what you need the money for and how long you will need to pay it back.
As your business grows, you may find you need liquid assets to invest in equipment, raw materials or more staff. Or maybe you just want to improve your cash flow to prepare for future growth.
Even if you don't need a business plan for the type of financing you are considering, it's a good idea to formulate one so you know where you stand and, even more importantly, where you see your business going. Then, explore your options for financing to decide how you can get there.
Business or personal loans give you more time to pay
Business or personal loans, underwritten through a bank, credit union or online lender, often have favourable terms for a business that needs a fast infusion of working capital. For these, you'll need to create a solid business plan and show your cash flow, balance sheets and business burn-rate.
Start-ups and small businesses with gross annual revenues of $10 million or less may seek assistance from the Canada Small Business Financing Program to qualify for a business loan. However, you may also opt for a personal loan to fund your business if you don't yet have a solid credit history established for the business. Personal loans are easy to apply for online, and you may receive funding in as little as 24 hours.
Since a personal loan is unsecured, you won't be putting your property or assets at stake if the business fails. The downside? Personal loans often carry higher interest rates than some other forms of financing.
Trade terms provide flexibility to manage your cash flow
Some business owners may opt to apply for trade terms with vendors they work with frequently. Sometimes referred to as “net 30," “net 60" or “net 90," trade terms are lines of credit extended by the vendor, giving the business owner more time to pay.
In the contracting trade, for instance, you may need supplies to begin a project such as a home renovation, but your customer isn't paying until construction is done. You can purchase building supplies on net 60, giving you eight weeks to pay. This can help keep a company “in the black” or even take on more projects at the same time, since you don't need money in the bank to pay for materials.
Establishing terms with vendors whom you trust—and who trust you—can help you save on the interest charges that may come with borrowing a lump sum upfront through a loan.
Rewards credit cards with interest-free days offer incentives and efficiency
In many situations, a cash rewards credit card like American Express, with up to 55 days*of unsecured credit depending on the time of the charge and the statement date, represents the best way to optimize your cash flow and finance business growth at any stage. There are no long-term commitments that you would experience with a loan, nor any complicated paperwork and investors to answer to. Keep your business under your own control and maximize your cash flow.
You may be able to call utilities companies, as well as your suppliers, to change the due date on your bills or modify your inventory purchase date. This would help you streamline your accounts payable by getting all your bills securely paid on the same date. After that you would just need to pay the American Express business card in full by the due date to avoid interest charges or late fees.
What's the best way to grow your business?
Whether you pursue financing in one lump sum to put capital back into your business, negotiate trade terms with your vendors or use a charge card or leverage other solutions from American Express to manage cash flow, financing is available for every stage of business.
Be sure not to overextend yourself by borrowing more than you can pay back. Having a clear business plan and up-to-date books can help you see how much you should borrow to take your business into its next phase without racking up an unhealthy level of debt, which can hurt your business in the long-term.
* As a charge card, the balance must always be paid in full each month in which no interest charges will apply. The interest free grace period is 28, 29, 30 or 31 days from the closing date of the current statement to the closing date of the next statement depending on the number of days in the calendar month in which the closing date occurs. The number of interest free days varies based on a variety of factors, including when charges are posted to your account, whether your account is in good standing, and the closing date of your statement
This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.