Businesses nowadays can grow at a much faster pace for several reasons. Aside from the growing economy, there are more business-related solutions and flexible financing options available to businesses of different sizes. Short-term financing or factoring is among the instruments small and medium-sized businesses can use to grow.
Before you go ahead and apply for a merchant cash advance to finance the next big order, however, it is important to know how you can use this financing option. Here are five tips on how you can maximise the benefits of using short-term financing.
Keep it short
There are two ways of maximising return on investment or ROI: you can boost your return or reduce your costs. Short-term financing like invoice factoring or cash advances is designed for, well, short-term use. To manage the cost of using the loan, you need to stick to that short loan period.
Don’t extend the loan unless it is for financing another, equally-profitable order. Be aware of the cost of extending the loan too.
Speaking of costs, being aware of the interest and other fees is important with any type of loan, including factoring and cash advance loans. You can further reduce the cost of getting the financing you need by opting for a loan with the lowest cost in the first place.
Finding a great merchant cash advance to use is relatively easy today. You have reputable companies like Merchant Money competing for your business. Visit Merchant Money UK to find out more about the kind of offers you can get.
Limit the loan
Only borrow the amount of money you need to fulfil an order or complete a project. Merchant cash advance loans offer up to £500,000 in business financing, but that doesn’t mean you should take out the maximum amount just because you can.
Remember that the more you borrow, the higher the cost of the loan will be. Borrow only what you need, and you can easily keep the loan viable as a financing option for the project or order you’re trying to fulfil.
Check your cash flow
Similar to when taking out other types of loans, it is also necessary to review your cash flow before applying for a cash advance loan. When will you receive payment for the order? Does the timeline of the loan match with the loan payment schedule?
The last thing you want is for the loan repayment to ruin your business cash flow. Fortunately, the best merchant cash advance loans now come with no fixed payback schedule. You get more flexibility and even have the option to align repayments to future sales in some cases.
Go with the flow
Certain short-term loans work best in specific situations. Invoice factoring, for instance, is great for financing projects and big orders. A merchant cash advance can be used for buying inventory thanks to its flexible repayment schedule.
What you want to do is use the right type based on the situation you are in. With so many financing options available to you and your business, you now have the ability to take advantage of spikes in demand.