For any business to succeed and prosper long-term, ensuring a reliable monthly income is vital. However, despite the necessity of your monthly income, you may not be aware of how it can be used to support future growth and sustainability.
Whether you’re looking to fund a refurbishment, smooth uneven cashflow or gain access to a capital injection, there’s a wide range of finance solutions available that could help. So to offer you some inspiration, here are just some of the solutions you could apply for and how they can be used.
Merchant Cash Advance
A Merchant Cash Advance lets you access your business’ future card-based income for an upcoming month. But in order to provide your business with an advance, lenders will require you to submit your card-based sales report for at least 3 or more consecutive months, allowing them to calculate an average. This means that if your business usually earns around £30,000 in card-based sales, the advance that you could receive maybe in the same region. Applications could also be approved in as little as 48 hours (depending on the complexity of the request). Plus, the advance also carries little or no usage restrictions, allowing it to be used for a variety of purposes such as uneven cash flow, staff wages, business tax, equipment purchases, emergencies, marketing or any other essential business project.
To repay a Merchant Cash Advance, the lender will automatically deduct an agreed percentage from each of your card-based sales. Therefore, the amount repaid each month is flexible depending on the number of card-based transactions your business carries out.
Another way to put your business’ income to good use is by applying for an Overdraft Replacement Facility, which gives you access to a line of credit. This enables you to instantly draw upon an allowance which is subject to a credit limit based on your business’ past income. Although you’re not obligated to dip into the allowance, you will be charged interest on anything that you do use. However, if you withdraw more than allowed of your allowance, you’ll be charged an overdraft penalty. Because Overdraft Replacements can be agreed in as little as 48 hours, with no usage restrictions, it acts like a buffer for your business, helping to support everything from seasonal trade shortfalls, staff wages, different stages of a long-term project and tax demands to unexpected emergencies.
Finally, you can release up to 90% of the income that your business is owed in unpaid business-to-business invoices worth in excess of £5,000 by applying for either Invoice Factoring or Invoice Discounting. Any capital that you do release will be subject to little or no usage restrictions, but is often used for boosting cashflow, replenishing supplies, preparing for an upcoming contract and supporting growth. With both of these options, you’ll need to maintain up-to-date business ledgers and show that the debt can be successfully collected from the debtor. In order to choose the most appropriate for your business, here’s what you need to know:
Factoring might be a suitable option if your business is generating an annual turnover of £25,000. If you’re looking to save time as well, this option also allows the lender to pursue the debtor on your behalf. Plus, some lenders may also offer you Bad Debt Protection, reducing the risk to your business in the event that debtor doesn’t settle the invoice.
Discounting, on the other hand requires your business to possess an annual turnover of at least £100,000. However, instead of the debtor making payments to your business, they are paid directly to the lender. Once the invoice has been paid in full, the lender will release a balance (for example, the remaining 10%) minus costs and fees.
Looking to put your business’ income to better use?
As a business owner, making sure that your business has a reliable income is a vital responsibility that you can’t afford to overlook. But as well as helping maintain your day-to-day operations, your income could be also be used to support other aspects of your business too. Once you’ve identified what your business needs to move forward, all you need to do is source an agreement that’s appropriate for your particular needs.