Unsecured Business Loan – When and How?

Small businesses have limited sources of capital, which quickly get used up in operations. 

Typically after a year or so of operations, even an exceptionally well-planned business will likely need to access additional sources of finance to meet operational requirements.

This can create problems; and the more successful the business is, the bigger the problem is likely to be.

Small business sources of finance are limited to:

•  the owners own funds,
• usually a bank loan,
• perhaps some vehicle or equipment finance,
• maybe a credit card, 

and that’s just about it!

An expanding business will quickly out-grow these traditional sources of finance, and finding the cash to finance the next project can become quite a challenge. And in recent times soft property prices have denied the case for increasing secured loan facilities.

 Unless you’ve got more cash to put in, or perhaps you sell a piece of the business,  you have to take a fresh look.

The first place for a growing company to look for a unsecured business finance is from within – your  balance sheet.

For example, there’s no doubt that by continuous efforts to refine and manage selling terms and collections policies, cash can be found, and cash flow can be improved by orders of magnitude.

We refer to good cash flow management practices as “cash flow hygiene”. 

The health analogy is appropriate. Just as we should watch what we eat, exercise regularly and get enough rest,  so a business can look after its health by paying attention to a number of Cash Flow Hygiene measures .

There’s no single silver bullet; practising Cash Flow Hygiene involves careful planning, and paying attention to all the potential cash flow leakages.

Cash flow leakages can exist in any area of the business.

For Example:

• inventory levels,
• management of work-in-progress and payment claims,
• buying terms and
• credit arrangements,
• payment terms and the timing of payments,
• expense control,
• credit and collection policies,
• the frequency and detail of cash flow planning and review measures, budgets (useful budgets – not the annual big event which is out of date in 30 days) and
• timely reporting and review processes.

Yes OK, But What’s Next?

Sometimes the cash flow needs are beyond normal management skills. Cash flow hygiene measures, even if diligently applied, are simply not enough.  A tight cash flow situation can arise from a temporary or seasonal set back in sales,  a big job or order coming in, or slow paying suppliers.

It's important that you look in your balance sheet for assets which can be used to raise additional secured or unsecured business loan. You may have surplus equipment, or  perhaps your inventory can be tweaked.

One such asset is your receivables ledger, the collection of invoices which are owed to you but as yet unpaid.

Invoice Finance as A Source of Unsecured Business Loan

Invoice finance is secured by the value of the invoice, and therefore is a convenient and fast way to raise cash from unsecured business loan. It’s not exactly a loan, strictly it’s a form of factoring, but the main feature is that external securities or collateral are not required.

What happens is that you sell the invoice value for an immediate cash advance amount of typically 80% of the invoice value. The remaining 20% is paid to you when the customer has paid, less the financing fee.

Barnfire Capital offers a free consultation to help you identify your best unsecured business loan source, including a review of the invoice finance option if that’s appropriate. There’s no cost or obligation.  For a free review call Nathan on  1300 055 233.