Which financing is right for your company?

Access to finance is a crucial factor in enabling businesses to drive growth, innovation and, in some cases, survive. For entrepreneurs, the world of financing options can appear both complex and overwhelming.

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Whether it's to start a new business, expand operations, or take on temporary financial challenges, it's important to understand the different options for financing that are available.

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Each form of financing has pros and cons, and what is best for your business depends on factors such as company size, industry, growth phase, and specific needs. It is also important to understand the financial implications of different forms of financing interest rates, repayment requirements, any collateral, and how these may affect the company's cash flow and finances in the long term.

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In this guide, you can read about the most common forms of financing that businesses can use, provide insight into how they work, and hopefully help you figure out which one is best for your company's unique needs and goals.

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Traditional bank loans

Traditional bank loans are one of the most established methods of corporate finance. Banks provide reassurance and often offer low interest rates and favorable terms, making them an advantageous choice for long-term investments such as business growth or larger purchases. However, the process of applying for a bank loan can be time-consuming and requires extensive documentation, including business plans and financial statements. They also tend not to lend to smaller companies as these do not generate sufficient returns for the bank and are considered too high risk, which is why bank loans are not an option for the absolute majority of all companies. However, for companies with a strong credit rating and a firmly established business model that can access a bank loan, it can be a cost-effective option for financing.

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Digital actors

Technological developments have meant that there are now a number of digital actors targeting funding to all those companies that banks do not lend to, such as Froda. These companies have built processes and credit models tailored to small businesses, allowing them to offer access to finance both faster and with less red tape than traditional banks. The digital players are often characterized by user-friendly interfaces, fast approval processes and payouts, making them an attractive option for companies in need of financing.

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Checkcredit

Check credit, also known as corporate credit or overdraft, is a flexible solution that allows businesses access to finance up to a predetermined limit. It is particularly useful for dealing with unforeseen expenses or short-term liquidity problems. Repayment is usually flexible and interest is calculated only on the amount used.

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Factoring

For companies with long payment times for customers, factoring can be an option to improve cash flow. Factoring is a financing method in which companies sell their outstanding invoices to a third party at a discounted price to instead get paid directly. Factoring enables companies to quickly convert invoices into cash, allowing for more efficient capital management and the ability to respond quickly to business opportunities.

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Leasing

For companies that want to avoid tying up too much capital, leasing can be an effective way to finance the company. Through leases, companies rent equipment for an agreed period instead of buying it in. In this way, companies can access the latest equipment without the large initial cost associated with purchase. In addition, leases can often be tailored to fit the specific needs and budget of the company, making it a flexible option for small to medium-sized businesses.