Running a small business day to day can often present liquidity challenges. Many owners are delighted when they land their first big order and they pour in their company's resources into completing it, only to land in the teeth-clenching no man's land of waiting for the client to complete the invoice. Those days and weeks can often put a small business in peril of insufficient working capital and jeopardise payroll, consumables, and all other running costs. However, this does not mean you should steer clear of taking large orders and stump your own business growth. There is a good number of opportunities to sustain yourself while that big invoice clears.
Rely on your local bank
In today's world of large conglomerates and global banks, it is easy to lose sight of the little guys. Even though local and community banks have been on the decline, many are still going strong, and they are perfectly capable and eager to support local businesses such as yours. It is, after all, in their own best interest to foster growth locally in order to solidify their own position in the market.
Local banks often do not face the same regulatory rigour as their large counterparts, and they sport higher approval rates for small business loans such as the one you would be seeking. Of course, make sure you do your research before you sign the dotted line. Checking the New Zealand Reserve Bank's credit ratings webpage would be a good place to start.
Get acquainted with invoice factoring
If you are plagued by large invoices that take a long time to get paid, you should really look into invoice factoring. Unlike a bank, factoring companies like Working Capital Solutions will look into your clients' financial strength rather than your own, so if you are working with reputable customers, as you should, you will have no problem to get financing against what they owe you. Factoring is also good for your overall credit rating because it keeps your working capital high and relatively constant, and it does not result in new debt, unlike a regular bank loan.
When shopping around for a suitable factor, do not be shy to inquire about the nitty-gritty of their financing procedures or to ask for references or endorsements from previous customers. Be very particular about the sign-up procedure:
- How long until I am approved?
- Are there sign-up fees and are they refundable if we do business together?
- How soon and via what method will you send me the funds after I submit my invoices?
- Once we enter a contract, am I obliged to seek invoice financing for all my invoices from you only?
If there are unclear or unsatisfactory answers, it is better to keep on searching. The number of invoice factors is growing constantly, and the competition pushes the good ones to perform even better.
Get expert advice from New Zealand's Small Business Assistance Centre
You should not forget that New Zealand's government also wants your small business to thrive and succeed. If you have not done so already, head over to the Small Business Assistance Centre's website which gives you a quick and easy-to-navigate overview of available government assistance. You can choose no- or low-interest loans, various types of equity financing, renewable or one-time financial aid schemes, and take advantage of a good deal of helpful advice overall.
One thing to keep in mind with this option is state bureaucracy which can slow the process down, depending on the funding scheme you choose. If you choose to rely on some form of government assistance, you get guaranteed help and no risk, but you should also take processing time into account. So, it is better to be proactive and explore your options before you actually anticipate needing the cash injection.
Consider online P2P lenders
There's a new breed of non-bank lender in the fintech space that have begun offering loans to New Zealand businesses. These lenders, such as LendMe.co.nz work on a peer-to-peer model whereby your request for a loan is managed through their platform and split over a series of small lenders in order to offer attractive interest rates to the borrower while reducing risk for the lenders.