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5 Types of finance to help Christmas cash flow

November 30, 2017

short term financing solutions for small businesses

Christmas can be a challenging time for many businesses, whether it’s your busiest time of year or a seasonal slump in trading.

Either way, lots of small businesses find that short-term finance can provide the boost needed to cover short term cash flow issues. Here are 5 funding options that can do this for you;

1. Revolving credit facilities

They might sound complicated, but a revolving credit facility is simply overdraft-style funding without the bank account. Just like a traditional bank overdraft, you’ll get a credit limit and pay interest on whatever is outstanding.

Many of the modern providers will allow you to ‘top up’, or increase your credit limit once you’ve made consistent repayments over time.

Either way, having a revolving credit facility in place means you can access the cash you need within minutes — which can be a big help in unpredictable times like Christmas trading.

One other benefit is that aside from the initial setup, you’ll only pay for what you use.

2. Merchant cash advances

If you take payments using a card machine, a merchant cash advance might be another good Christmas option.

They’re technically an ‘advance’ on your future earnings, which means the total cost is agreed up front, and the amount you can get depends on your recent trading history. For example, you may be able to get an advance equivalent to one month’s typical card revenue.

The merchant cash advance provider works with your payments provider to work it all out, which means after some initial setup it’s very easy from a management point of view.

All you have to do is keep using the card machine as normal, and repayments are taken as a proportion of your future earnings. For example, a transaction for £100 might repay £20 to the lender and send the other £80 to your account.

This method of repaying can be really handy for less predictable businesses, because it means your repayments go up and down with your takings without any active involvement from you.

The downside is that this flexibility comes at a cost, and merchant cash advances tend to be quite expensive.

3. Invoice finance

On the other hand, you might earn most of your money by invoicing other businesses. In these cases, you could be eligible for invoice finance, which uses the money your customers owe you as the basis for lending.

There are a few different kinds of invoice finance, but the general idea is that the lender gives you most of the value when you raise the invoice, and then you get the remainder minus their fees when your customer has paid.

For Christmas especially, it might be worth looking into the online providers of invoice finance, who give you the ability to release the cash from one invoice on an ad hoc basis.

With these kinds of products, you could finance a large invoice to ease your cashflow while leaving the smaller invoices unaffected.

To learn more about invoice finance solutions read, Invoice Finance – What is it and how can it help my business?

4. Business credit cards

Similar to revolving credit facilities above, a business credit card is a useful buffer to have set up. Many businesses also favour them because it can make expense tracking and end-of-the-month reconciliation easier.

However, securing a business credit card with a high street bank can be tough these days, and it may also take a few weeks to arrange even if you’re successful.

It’s also worth bearing in mind that the credit limit can be restrictive if you’re looking for funding for a larger project.

Having said that, some new providers are moving into this market, often adding a card to their existing revolving credit facilities, so there are some faster options out there too.

5. Unsecured business loans

For those bigger projects or longer-term cashflow issues, you’d do well to consider unsecured business loans. They get their name because they don’t require any security, and instead are based on the general strength of your business.

This means lenders will want to see profitability and at least a couple of years of trading history — and they may also want a personal guarantee, which is your pledge to repay personally if your business can’t.

However, the benefits of unsecured loans are that they can be a means to raise a significantly larger amount than a business credit card, for example — and if you’ve got a specific Christmas project in mind, a loan is perhaps better suited to the job.

A world of financing options

These are just five of the ways you could use finance to give your business a cashflow boost this Christmas. But with so many products and providers on the market, we’ve only scratched the surface in this article.

If you’d like to know which lender is best for your situation, Funding Options can help you find the right option, and our record is 7 minutes from initial enquiry to approval — so we can help you get the right finance lined up for Christmas as quickly as possible.

About the author

This guide has been written exclusively for ByteStart by Conrad Ford, Chief Executive of Funding Options, which was recently described by the Telegraph as “the matchmaking website for small businesses and lenders”.