Published On: Mon, Mar 2nd, 2020

A Guide to Debt Financing Business Loans

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Many companies fail in today’s competitive corporate environments even though they look good on paper. This is often down to inadequate cash flow or a lack of funding to allow the business to grow or even to operate on a firm financial footing on an everyday basis. Debt financing business loans and funding solutions can help them stay afloat and prosper.

A Guide to Debt Financing Business Loans

Business Banking Loans and Overdrafts

Many businesses will use their corporate bank account to help them raise money. Commonly this will involve using business loans and/or overdraft facilities. For most companies their overdraft will be used for short-term financing to help even out cash flow issues or for smaller lending needs. Formal bank loans are often used for larger funding.

Whilst a business overdraft may be easy to arrange for most companies the sums available here may not be high enough to deal with many borrowing needs. Corporate loans may be a better option but, given the current economic climate, these may be hard to arrange especially for SMEs. They may also come with high interest rates and may need some form of security to be used as collateral.

Government/European Investment Bank Business Loan Solutions

The recent recession has made it harder for a business to be approved for standard banking loans. Smaller enterprises may qualify for other solutions that are either backed by the government or by the European Investment Bank. These include:

The Enterprise Finance Guarantee: Businesses that don’t have the security to raise a standard loan may qualify for a government backed EFG product as an alternative. These loans are given by lenders that participate in the scheme but are part-backed by the government (to the tune of 75%) to help smaller businesses with turnover of up to £25 million to raise finance.

European Investment Bank Funding: Some high street banks have been given funding by the European Investment Bank to help smaller businesses to raise finance. To qualify a business must have less than 250 employees. This solution can help a business access cheaper lending or cash back solutions.

These solutions come with restrictions but both may help smaller businesses to borrow money more easily and to do so at a cheaper cost.

Self-financed Investment by Business Owners

Some business owners will choose to (or will have no alternative but to) invest in their companies themselves. This could, for example, involve a business owner taking out a second mortgage on their home to raise money to invest into their company. This is generally not an ideal solution as it involves personal risk if things go wrong.

Equity investment can also be used as an alternative to debt financing. This route involves getting an investor/investment company to commit funding to the company in return for an equity stake. Businesses with cash flow problems rather than long-term financing needs can also look at factoring solutions as a way to even out their finances.

About the Author

- I am an internet marketing expert with an experience of 8 years.My hobbies are SEO,Content services and reading ebooks.I am founder of SRJ News andTech Preview.

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