A Guide to Small Business Financing During Coronavirus

The following article is a brief guide to small business funding during the Coronavirus, providing some basic tips for businesses to avoid the debt trap in their attempts to stay afloat.

Coronavirus and Small Business

The coronavirus pandemic has caused a great deal of damage to a large number of businesses out there. However, research has shown that small businesses continue to be started despite the obvious perils.Though business is tough, there are those small businesses that are growing and changing to meet the new challenges head-on. A key aspect of such growth and change will be finance and support. Business funding is the key aspect to expansion and growth, as is cash flow for the day to day running of the business.

This article keeps it simple and makes the main distinction between internal and external fundingsources, and provides a clear rationale for small businesses to access internal, less risky funding before looking elsewhere.

External Business Support

During these dark days, many small businesses have struggled to keep their businesses going. Finance for running costs, wages, and to pay off existing loans has been in short supply, considering the lack of customers in town. However, there are still several sources of funding available to small business owners.

The main source of funding for small businesses during the COVID-19 pandemic has been cash grants and loans from the government. The Lockdown Grants are non-repayable, and the amounts range based on the turnover of the business. The main use for these grants is simply to keep the business ticking over. There are also specific sector grants for industries that have been hardest hit by the pandemic. Again, these are non-repayable but not large enough to make a significant difference to your small business growth ambitions. Then there are the loans from the governmentthat are available to small businesses, loans that must be paid back at some stage. Lastly, there are the traditional means of financing expansion and growth, whereby small business owners are able to approach banks and financial institutions to access funding. There is a cost to the business for this type of finance. Even government support for small businesses during this time has certain caveats, and most will need to be paid back over the long term, whilst the grant money available would not be sufficient for expansion or growth, merely survival.

Internal Business Support

In times such as these, the risk associated with external funding has led many a business to look at all the options for leveraging opportunities within the business. There are a number of ways to do this. Selling your order book, invoice financing (which includes invoice factoring and discounting), trading future invoices, and lastly,selling assets that are not being fully utilized.

The internal funding model is incrediblyless risky, yet selling off assets would leave the business in a predicament should they need to start up again with those very assets. Currently, the most widespread source of funding has been invoice factoring and discounting. As long as you can sell the product or service and have customers out there, then you will be able to leverage these invoices for cash flow, creating money that can be used for immediate expansion and further production.Generally, your business will be able to access money from invoice financing within as little as 48 hrs. Yes, there are fees for the finance, generally a percentage of the invoice amount, but these have been much lower than traditional external sources of funding.

The increased risk for small businesses during the current crisis may yield increased returns. However, the bottom line is that should you need to fund the expansion of your business or even just to protect the business from the effects of COVID-19, avoid risk and look internally before you go to the high street for traditional finance streams.

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