Maintaining sufficient inflow of working capital is a major concern for any business venture irrespective of its size and area of operation. While profit-making concerns find it easier to manage its capital requirements, the new firms or firms undergoing losses may find it relatively difficult to maintain a continued flow of working capital. Though there is no dearth of financing option in the market, the selection of proper source of financing has a major influence in determining the future profitability of a company. The source opted to finance a company’s working capital requirement varies in each case. An option that is good for a specific organization may not have the same positive effect for a different organization. Every funding source has its own terms and conditions that the borrower should comply with. Lack of proper finance knowledge can lead to a wrong choice that in long run can have an adverse effect on the company. So proper knowledge in this regard is essential.
Loans are by far the most common form of financing. They are of two types: secured and unsecured. Secured loans are handed in exchange of security. On event of non-repayment of the loan amount, the security/ collateral is forfeited to the lender. Unsecured loans do not require any collateral or security from the borrower. The rate of interest depends on the principal, duration of loan, repayment period and the credit history of the borrower. However, as unsecured loans are not secured with a collateral, the interest rates are usually higher than the secured loans.
Apart from the various conventional loans on offer, a business cash advance is a very good funding option for the small businesses. While other financing schemes come with the burden of a monthly repayment plan and bank heavily on the credit history of the borrower to ascertain eligibility and interest rates, a cash advance requires neither of these two. A two-year-old business accepting Visa/ Master card as a form a payment is all that is needed to be eligible for a business cash advance. The loan amount is repaid through the future credit cards sales receipts.
The choice of the mode of finance depends of the borrower’s affordability. If one is comfortable with monthly repayments then a secured or an unsecured loan is the way to go. On the contrary, if one finds such periodic repayments burdensome then a
business cash advance is certainly a better choice.
