How Flexible Financing Can Unlock Your Business Potential

by Kieran Daly
May 8, 2024
How Flexible Financing Can Unlock Your Business Potential

If your business needs extra capital to cover its costs and grow, traditional bank term loans are still a popular choice for many company owners. However, in recent years, more flexible financing options, like business lines of credit, have become more popular

Below, find out what flexible financing offers and what types of facilities you can apply for.

What Is Flexible Financing?

Flexible financing is a broad term that covers a range of alternative funding solutions that share some or all of the following characteristics:

  • Tailored repayment options: Many flexible financing options require you to pay down your balance each month. However, others offer borrowers much greater financial flexibility in how they repay their facility. For example, if you run a seasonal business, you could look for a package that allows you to pay less during quieter times of the year so that you can manage your cash flow better across the year.

  • Tailored funding: You have more choice on how you receive your funds with a flexible finance solution. If you’d prefer to receive a one-off upfront lump sum payment, many lenders offer this option. If you’d prefer to have a business line of credit that you can draw from only when needed, you can apply for this type of facility instead.

  • Streamlined application process: On many flexible funding finance applications, you’ll get a much faster answer from lenders, sometimes within 24 hours. You often won’t have to provide detailed information like business plans and cash flow forecasts either.

  • Wider availability: Flexible financing lenders often approve applications from companies with lower credit scores than traditional banks and credit unions. They have a more nuanced approach by taking into account business history, cash flows, recurring revenues, and other factors.

  • More flexible collateral options: When they require collateral, flexible finance providers will often consider asset types that traditional lenders won’t, like accounts receivables and future credit card sales.

11 Popular Flexible Financing Solutions Available to Businesses

Eleven of the most popular flexible financing options include the following.

1. Business Line of Credit

A business line of credit is a type of finance that provides companies with a credit line.

They work similarly to business credit cards. You have a preset limit (the maximum amount of money you can borrow). You can draw on funds as needed, and when you repay some or all of the amount you’ve borrowed, you can borrow the amount you repaid again.

You only pay interest on the amount you’ve actually borrowed, meaning repayments can be much lower than a standard business loan.

Business lines of credit are ideal for cash flow management, covering unexpected expenses, or taking advantage of short-term opportunities.

2. Working Capital Advance

With a working capital advance, you receive an upfront lump sum to cover your short-term operational and cash flow requirements.

Typically, the repayment period for a working capital advance is 12 months; however, Backd offers qualifying borrowers up to 16 months to settle their advance.

You can repay working capital advances on a monthly basis, like with standard business loans, but many lenders, including Backd, offer weekly or daily payments as an option.

3. Equipment Financing

Equipment financing is a popular type of flexible financing solution for companies wanting to purchase equipment, machinery, or vehicles to operate and grow.

You can structure equipment financing as either a loan or a lease. With a loan, you own the equipment at the end of the term, and with a lease, you either hand it back to the lender or buy it for one final payment, depending on your agreement.

The equipment being purchased often serves as the collateral for the facility too.

Equipment finance allows businesses to spread the cost of expensive but vital equipment while preserving cash flow and providing an opportunity to sustain or grow revenues.

4. Invoice Financing

Invoice financing — sometimes called accounts receivables financing — is one of the most well-established flexible financing solutions.

With invoice factoring, you borrow money against your outstanding invoices by selling them to a finance company at a discount.

They then provide you with a portion of the invoice value (typically 70%-90%). You normally receive this within 24 hours providing an immediate boost to cash flow. When your customer pays, you receive the balance minus the factoring fees.

Invoice financing is only available on B2B invoices, and you can only sell an invoice to a factorer when the work is complete and to your customer’s satisfaction.

5. Merchant Cash Advances

Merchant cash advances are an expensive flexible financing option, but they can be a good source of opportunistic capital. This means you can use the finances to fund a project that will have a return on investment, and the profits can be used to repay what you’ve borrowed.

You sell your future credit and debit card receipts to a lender in exchange for an upfront sum of cash. Your lender then takes an agreed portion of your daily receipts until the loan plus the percentage charged as a fee is paid off in full.

Repayment periods can be as short as a few weeks. Merchant cash advances are often easier to qualify for than traditional loans and can provide quick access to funds.

6. Revenue-Based Financing

Revenue-based financing is a type of flexible funding where you receive capital in exchange for a portion of your future revenue, just as with a merchant cash advance.

In this case however, the percentage taken is of your overall sales ledger rather than sales that were paid for by debit or credit cards.

7. Bridge Lending

Bridge lending is a way to bridge the gap between a company’s immediate financial needs and their longer-term funding options.

Bridge loans are used to cover expenses or make purchases while a more permanent funding solution is sought. For example, you could use a bridge loan to purchase inventory from your supplier, repaying the lender when you’ve sold enough inventory to cover the loan. They are also used often in commercial real estate purchases.

8. Crowdfunding

Crowdfunding is a way of attracting investors to back your business in return for equity (a shareholding in your business) or a reward.

In most cases, on crowdfunding platforms like Kickstarter, businesses offer rewards which are usually a copy of the product the company is raising funds to develop and launch.

9. Venture Capital

Venture capitalists provide business financing in return for a significant stake in your company. The percentage they want will be much higher than the percentage required on crowdfunding sites when businesses offer equity and not a reward for investing.

Venture capitalists back incorporated companies (and occasionally unincorporated sole proprietorships and partnerships) with the aim of cashing out their shares within three to five years by selling their shares.

Crowdfunding and venture capital differ from standard business term loans in that you don’t make monthly payments to repay the funding you’ve received. Some venture capital firms may want to take a share of your turnover and/or profit during the period of time in which they own shares in your business.

10. Equity Financing

It’s not only venture capitalists who will offer you funding in return for a shareholding in your business.

Venture capital finance comes under the broader umbrella of equity financing. Individual investors and angel investors are other major sources of equity funding in America. 

More established companies opt for an Initial Public Offering — in other words, they list themselves on the stock market.

11. Peer-to-Peer Lending

Some peer-to-peer platforms do offer lines of credit and other types of flexible financing, but in many cases, what they offer most closely resembles standard commercial loans to businesses. With these standard loans, there is a clearly established payment schedule during which you repay in monthly installments before an agreed date.

The flexibility in peer-to-peer lending comes from the range of types of loans and interest rates you can select from.

Advantages and Disadvantages of Flexible Financing Options

Flexible financing is an excellent way to cover short-term business needs and provide liquidity to companies. However, it’s not right for everyone.

Here are the major pros and cons for companies considering a flexible financing solution.

Flexible Financing Advantages

  • Faster access to capital: Compared to traditional bank loans, flexible financing lenders offer a much more streamlined application process. They need fewer documents from you, and they can turn around decisions much faster, which is important if you need urgent funding.

  • More relaxed eligibility requirements: Business owners with lower FICO Scores are often more likely to be approved for a facility than if they applied to traditional banks and credit unions. Startups with little or no credit history may find it easier to secure funding from flexible lenders. Plus, many providers like Backd will use a soft credit check during the approval process, so your credit score won’t be negatively affected by seeking funding.

  • Credit rating repair or improvement: Many flexible financing solution providers report how well their borrowers are managing their facilities to credit bureaus. This means that if you manage your account well, your FICO Score will improve.

  • Greater scalability: Related to the previous point, your lender may extend your credit limit or allow you to take out another facility if you have made all repayments on your flexible financing solution on time and in full to date.

  • Reflective of circumstances: This type of financing can be more tailored to a company’s unique needs, taking into account factors such as industry, cash flow patterns, and plans for business growth.

Flexible Financing Disadvantages

  • Higher costs: Traditional bank loans often come with lower interest rates and fees than flexible financing plans. This is to reflect the increased risk lenders take on in expediting the application process and providing funding to companies with less stringent requirements.

  • Shorter repayment terms: Shorter repayment terms can mean that the cost of your flexible funding option is lower overall. However, it can put pressure on your business finances if you have to make a repayment and the revenue you’re expecting to come in is late or doesn’t materialize.

  • Risk of debt cycle: Further to the previous point, having to repay facilities so quickly can lead businesses into a cycle of debt, where they become reliant on continuous borrowing to stay afloat. This may result in a company becoming financially unstable.

How to Use Flexible Funding Options to Your Advantage

The flexible financing solutions available to businesses are powerful tools that companies can use to manage financial stability and take advantage of growth opportunities.

The best ways to use flexible financing to your benefit are:

  • Be certain you need funding: No matter which flexible financing solution you choose, it will cost you money in interest and other charges. If you can pay for new equipment or cover an unexpected bill from your current and expected future revenues without damaging cash flow, that might be the better option.

  • Choose the right type of finance: If you do need funding, choose the flexible financing option that costs the least and fits in best with your cash flow cycles and general financial plans.

  • Monitor your repayment performance: Stay on top of your finances once you’ve received funding as you might spot an opportunity to reduce costs by repaying a facility in full or making an overpayment. On the other hand, if you find that you might struggle to make a repayment, reach out to your lender and request an alternative payment plan over a longer period of time. It’s much better to proactively volunteer to a lender that you’re experiencing difficulties than wait for them to contact you because they couldn’t collect your auto-debit.

Access Flexible Financing Through Backd

Flexible financing has grown in popularity because it provides a more adaptable and accessible alternative to traditional bank loans.

It ensures that businesses can get access to the capital they need faster and repay in a way that better fits their circumstances. Companies are not tied down to repaying loans over multiple years.

Backd offers a business line of credit for between $25,000 and $750,000 with weekly repayment options over six or 12 months. We also offer between $25,000 to $2 million with the working capital advance facility.

Apply today and be funded within 24 hours.

What would you do with the right amount of capital?

Working Capital Advance

Easy payment structures offer amounts with fast turnaround, Simple and easy process to access working capital.

  • Flexible - no collateral required
  • $10K - $2M
  • Terms up to 16 months
  • Automatic daily or weekly, or semi-monthly payments

Business Line of Credit

Get instant access to revolving credit with unlimited terms, and the best rates for your business.

  • Draw funds anytime
  • $10K - $750K
  • Unlimited terms, incredible rates
  • Soft credit pull that doesn't affect your credit score