Traditional forms of financing will be limited in 2021, in light of the current economic situation and how it has been impacted by the COVID-19 pandemic. Much of what you will be able to borrow will have to do with your financial performance in 2020.
So, what’s next for the economy? Where can you turn, as a business, to find working capital solutions that will move your business forward?
Let’s talk a bit more about the state of the economy. Then, we’ll cover a few of the alternatives your business should consider to maintain consistent cash flow or to spark growth within your company.
Financial Optimism is Mixed
There are several factors that could (and likely will) impact the overall state of the economy in 2021. The first is consumer spending. Finance leaders in business will need to track economic trends and spending habits, and carefully consider their budgeting and investment choices, as well as make cleaner supply chain choices.
The rise of the remote workforce will also have an impact on the future of the economy. With many people still working from home, it could be a way for businesses to save money on overhead and other expenses related to having employees in-house.
The United States election will play a big role in the future of business financing, too. Already, everything from debates to the ups and downs of a COVID-19 stimulus package has thrown the U.S. stock market into a rollercoaster pattern. The election in November will undoubtedly affect the future of the economy.
While the government has provided many businesses with support, relief, and even low-interest loans, if companies plan on getting back to normal in 2021, they will likely need to make financial decisions that go beyond traditional financing. Interest rates are likely to rise and financing options will become slim.
Even if you are able to secure financing, your business might not be in a financially-secure enough position to deal with a high interest rate and fixed monthly payments.
So, what are your options?
Factoring allows your business to obtain capital right away based on future income. It focuses on the ability of your customers to pay for their invoices, rather than focusing on your business’ credit line. You’ll sell your accounts receivable and receive a small discount in return.
Asset Based Lending (ABL)
With asset-based lending, you don’t have to sacrifice any equity in your business. Instead, the lending agreement is based on collateral. You offer up an asset of your business, and if the loan amount isn’t paid off in a designated time, that asset is used to cover the financial gaps.
Supply Chain Finance
Supply chain financing is an option to obtain cash flow while allowing your business to lengthen their loan payment terms to their suppliers. In doing so, they give the suppliers the option of getting paid earlier than usual.
Floor Plan Finance
Floor plan financing is specifically set up for manufacturers and dealers of equipment. The loan is used by dealers to purchase inventory. Once that inventory is sold and sales are increased, the loan can be paid back.
Which Type of Financing Does Your Business Need?
Don’t let the future of financing intimidate you. While traditional options may be few and far between, there will continue to be plenty of ways to boost your business’ cash flow in 2021 and beyond. If you’re interested in learning more about these types of financing, contact ENGS for more information.