Making smart financing decisions is crucial for effective business growth and development. Given the fast-growing number of finance companies and investors today and a multitude of choices available, there goes considerable evaluation to find the right source of capital for your business. Typically, you can finance your business in two ways – debt or investment. Additionally, top-notch finance companies, such as SUISSE CAPITAL, also offer a wide spectrum of financial instruments to facilitate seamless and secure trading. However, before you take the giant leap towards financing your business, it is vital to consider a few important factors as discussed herein.
So let’s get started and understand how you can make an effective decision about choosing a source of capital for your business.
Table of Contents
1. Determine for what purpose you need financial services
This is one of the most crucial steps – determining your needs for financing. If you are a small business owner and want to meet your regular finance expenditures like vendor payments, short-term finance sources are most suitable for you. Opt for credit loans with shorter tenure and easy interest rates. On the other hand, if your company is involved in bulk manufacturing projects, construction or other heavy-duty activities where expenditure involvement is high, you can choose long-term sources of finance. For instance, if you want to purchase heavy machinery for your new construction project, financial leasing is best suited wherein the finance company (the Lessor) will make payment for the purchase on behalf of your organisation (the Lessee). The tenure of such financial service is typically for 10-15 years.
2. Risk assessment
Before choosing the right financial product or service for your business, it is integral to assess and mitigate your overall risk, say the experts. In today’s business environment of uncertainty, what if a contingency strikes and you are unable to fulfil your financial commitments about the source of capital. In most cases of long-term financing, businesses have to provide collateral against your repayment. If you are unable to meet the obligations as mentioned in the terms and conditions, your collateral can be at stake. This can significantly affect your business credibility and overall bottom-line of your organisation. Even for financial services like insurance, you must determine whether you will be able to bear the financial obligations attached to it. Evaluating your risks beforehand can help effectively mitigate them.
3. Control and Ownership
Control is one of the most integral factors you should consider when choosing financial services for your business. As we said earlier, sourcing capital for your business can be in two forms – debts or investments. However, you have to consider the ‘control’ factor related to both the options available. If you considering sourcing finance by issuing equity, i.e. through investment, then you are handing over a segment of ownership in the business to the investors. In that case, you are accountable to the shareholders for your operations, business decisions, profitability and losses. Therefore, many businesses do not prefer investing in their shares to source capital.
On the other hand, finance companies offer a wide spectrum of solutions such as loans, leasing, consumer credit, etc. to fuel your business operations and growth. In this case, complete control of your business and its assets lies with you unless you become bankrupt or is unable to make timely repayments. The finance company does not have any role in your organisation’s decision making, operations, profit or loss. At the end of the loan tenure and on full repayment, the ownership of the asset as collateral also lies with you.
So if you want to have better control of your company, partnering with financial institutions might be a viable option.
4. Types of financial services available
Once you have determined your core needs and risks associated, it is important to take a quick rundown of various financial services available to you. Honestly speaking, there are numerous types of financial solutions to choose from and picking the right one for your business can be overwhelming. Therefore, it is always recommended to consult an experienced financial advisor who can help assess your needs and pick the right financial product or service that can help mitigate your risks.
Types of financial services may vary from one company to another. Typically, premier institutions like SUISSE CAPITAL offer the following services:
- Financial leasing
- Credit granting
- Business insurance
- International trade finance – Letters of Credit, Bank Guarantee, Standby Letter of Credit, Warranties and Proof of Funds
5. Is the finance company trustworthy?
Choosing the right finance company also plays a pivotal role in shaping your financing decisions. Pick a finance company that has good credibility in the market and that other businesses can vouch upon. Do a little homework about the company and how it is managed, kind of financial services they offer, the scope for short-term and long-term plans, support services, etc. Talk with the representatives of 2-3 finance companies and compare them based on several factors mentioned above. Do they provide financial advisory services? What risk management solutions do they have? How responsive they are about promptly offering customised services?
6. Rate of interest and fee structure
Calculating your total cost based on the interest rates and fees applicable is also important before choosing a financial service. It will vary based on the type of financial service you choose, repayment tenure, and the finance company. To have the best deal, compare the fees and interest rates of multiple financial institutions and pick one that is most suitable for your business.
7. Determine the repayment terms
For financial services such as leasing or credit, it is crucial to determine the repayment tenure you can afford. Short-term financing may have less accumulated interest rates but periodic payment amounts are bulk. On the other hand, long-term financing can result in a huge amount of interest accumulated over time. Considering these factors beforehand will help you leverage the financing opportunity at its best.
Availing any type of financial product or service is subject to certain market risks. In addition to considering the above factors, seek consultation from an expert to make an informed financing decision for your business.