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Leasing instead of buying
If we are considering a loan for our company because we need a new van or a production machine, let’s check the leasing offers. Perhaps it will be a safer way out for our finances than a loan commitment. When deciding to lease, we divide the cost of purchasing the needed items into installments, instead of paying them in full. Later, we can give the machine to its owner and lease another (newer, better) or buy at a reduced price the one we have used so far.
However, we should remember that the final purchase price of the leased item we need will be higher than if we had bought it immediately. On the other hand: we can enter leasing installments in tax-deductible costs, while monthly payments will certainly hurt our company’s finances less than a large, one-time expense or loan for years.
Factoring, i.e. soft debt collection
Our company’s financial deficiencies do not have to be due to the fact that we earn too little or make wrong business decisions. It happens that we work honestly and provide the customer with a service, issue an invoice and … wait. And when we wait for payment so long that we get into trouble and are lacking for current or special expenses, we are looking for a solution. Instead of applying to the bank for a loan to cover the costs of an investment that we cannot afford, we can turn to a factoring company for help.
What is factoring? This is the so-called soft debt collection, thanks to which we do not have to wait for the debtor to give us the money because the factor buys the debts from us and takes the debt on himself. Most often we receive about 90% – 95% of the value of each of the outstanding invoices. And although this is not the amount we would have earned on a slow-witted client, the situation is still quite comfortable for us: we maintain our company’s financial liquidity; Instead of worrying about invoices not paid by the customer and taking out loans, we can continue our business and not get into debt because of our debtors.
Business angels usually take under their wing the so-called start-ups, i.e. fresh or emerging companies, but they are also eager to deal with those who want to develop or introduce innovative solutions to the market.
Angels are private activists who, in exchange for shares in our company, invest a certain amount (it can go up to millions of dollars!) And surround us with consultative care. Such people have experienced players on the market, have a dense network of business contacts and know what’s going on in the grass.
Business Angel’s help is not only pluses. Although the reins of the company remain in our hands, our benefactor may demand not only shares but also a voice in matters of running our business. Are we ready for such cooperation for the next few years?
We can also apply to the appropriate investment fund for financial support. The venture capital fund will be the best for small start-ups, and the private equity fund for medium and large. Let’s explain briefly what each of them is about.
The venture capital fund is intended for enterprises at an early stage of development. The investor becomes a co-owner of the company (i.e. a step further than Business Angel), and the scope of his supervisory and management powers is determined at the stage of negotiations of the amount of financial support to be provided by the fund.
Private equity funds are primarily interested in the long-term increase in the value of the company in which they invest (in order to resell shares at a high price in the future), and not increase their current profits. They are called high-risk investments because they specialize in this: if an enterprise is at an early stage of development or wants to develop a costly, innovative project, funds are willing to step in and take the challenge.
Company loan – alternatives
All of the above solutions are intended for other types of enterprises and situations in which they find themselves. Under certain circumstances, leasing will save us instead of buying for a loan or factoring instead of borrowing money from the bank in anticipation of overdue debts. And businesses at the start? The care of a business angel or cooperation with an investment fund may prove to be a much better solution than taking a big loan from a bank. Instead of money, we receive advice, support of experienced businessmen and a network of useful contacts.
Which one will be best for our company? Let’s think carefully about the situation we are in and check all the possibilities that the world of business and finance opens up for us!