Monday, October 12th, 2020
Creativity is your best friend in a COVID-19 economy where funding is limited, and banks are unwilling to lend.
While many UK businesses have turned to government relief loans, the majority still need alternative funding to keep their companies running.
So, where do you begin the search when your regular lending sources fail? Perhaps these three sources are an excellent place to start:
The 3 Sources of Business Funding Amid a Crisis
When you’re desperate for financial backing, you want to look everywhere to increase the likelihood of success.
We break down the sources into three categories to simplify the search.
- Outside Sources
It involves seeking financing from sources outside your business.
These include business loans, merchant cash advances, equipment financing, invoice financing, etc.
Banks issue traditional business loans. And while most are unwilling to lend at the moment, your local bank may be happy to support businesses from around.
Other sources like MCAs, equipment financing and invoice financing come mainly from alternative lenders that are easier to acquire.
Bank loans are reliable but require collateral, may lead to repayment commitments, and even welcome bad debt, especially during tough economic times.
MCAs are fast and easy to access, but businesses must double-check deals to avoid rip-offs.
- Personal sources
This involves digging into your personal savings account to rescue your business. For instance, creative business owners use their personal line of credit to solve business problems.
Another approach is to sell personal assets or property to raise business finances.
Though a creative way to get emergency funding, whether or not a business can rely on personal sources depends on its owner (s) financial capabilities.
Still, it doesn’t lead to an endless cycle of debt.
- In-house sources
A business that’s been active for a long time can turn to its in-house reservoirs to overcome financial problems.
Limited companies can enjoy share capital, which offers access to finances. You could also sell business assets to source funds internally.
While in-house sources are an excellent way to avoid accumulating debt, this approach tends to favor well-established businesses.
UK businesses can leverage financial backing from one of these three options amid COVID-19. However, merchants must understand the pros and cons of each source and measure risks upfront.
Also, remember to compare vendors before taking out a loan.