Thousands of businesses in the United States are in desperate need of financing. They are struggling to pay off their bills and gain a steady economic footing. These companies have to deal with losing customers and not being paid by vendors.
All of these problems mean that these businesses are in need of funding sources that work closely with them. Many banks are interested in maximum profit and standard contract terms. Most of their plans are too rigid for companies. Instead, more and more businesses are turning to flexible finance options from banks and alternative institutions.
These options allow a company to bring in the revenue they need without causing problems for their shareholders or employees.
Alamo Associates argues that flexible business financing must have terms that benefit the company that is applying for the loan. Terms should reflect the circumstances of the business and its needs. Examples of flexible terms include a flexible loan that continues a single monthly payment with low-interest rates, a flexible payment date, and the ability to pay variable payments.
A variable payment system would involve a company paying back a smaller amount when business slowed down and a larger amount when it picked back up again.
The company may not pay the same amount every month but would pay on time over a longer period of time. Companies requesting flexible finance may also petition for longer deadlines and a grace period that allows them to wait several days before making their payment with no penalties. Many businesses would greatly benefit from this flexibility because their funding models rely on invoices that are not always paid on time.
Flexible business financing should also be renewable and should not only have one use. A business should not have to go back to the bank every time they need money. Instead, they should be able to draw on funds whenever they are needed as long as they meet all of the requirements of the loan. This flexibility is usually accomplished with a small business line of credit instead of a small business loan.
Lines of credit allow a company to frequently dip into a pool of funds and then have the greater borrowing be reflected in their loan payments.
According to Alamo Associates, some small business loans can be renewed on a yearly basis. Companies and lenders meet and hammer out any changes in the next submission of the funds for the loan.
This flexibility is necessary because the terms of the loan are not always clear. Sometimes, individuals are uncertain about how much money they will need or the nature of their funding issue. They may think that they only need funds for a capital project when a hailstorm derails their company fleet. These changes often require a company to take out more than they could have possibly predicted early on in the process.
Clear communication between lender and borrower is key with a case of flexible business financing. Many lenders and even some businesses are wary of flexible financing. They worry about the potential impact to their credit stature and their ability to gain more loans in the future from other sources. This concern leads companies and lenders to seek basic, simple terms and loans.
Flexible financing requires communication from both sides. Lenders and borrowers have to talk on a somewhat regular basis. They have to bring up any concerns that either side may have and address those concerns as soon as possible.
What to do
Companies interested in pursuing alternative forms of financing should take a number of steps in order to secure the best possible funding option. First, they should bring together all of their financial statements and needs.
Companies must know what they want and what they need in order to pursue the right flexible financing plan. This step is essential to making sure companies do not borrow too much or too little through a flexible finance plan.
Then, companies should consult traditional lending institutions such as banks and credit unions. These institutions are governed by years of precedent and hundreds of regulations designed to keep borrowers safe. If these institutions do not provide the flexible funding that a business requires, that business should carefully and cautiously consider looking at a reputable alternative institution for financing such as a trusted website or non-profit group that provides financing for businesses.
Flexible finance will not solve all of a company’s problems. Companies will still have to pay back their loans and lines of credit with interest. They will still face pressure to meet all of their payment deadlines as well. But flexible financing can be marginally helpful in allowing a company to smooth over rough patches. It can mean the difference between a company being destroyed by a recession or correction and one surviving and thriving through a temporary downturn.
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