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How to Choose the Right Business Finance Provider for Your Company

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Interested in looking at finance options for your company but don’t know where to begin?

Choosing the right business finance provider for your company is not a straightforward process. Different providers offer different kinds of finance, each with their own unique advantages and disadvantages.

But making decisions about what kind of finance your business needs is only the beginning of this research rabbit hole. It’s just as important to ask the right questions about the finance provider itself. In business, ethics and customer service, it only requires a little bit of digging to see that not all finance providers are created equal.

Given the many factors to consider it’s probably not surprising that, despite the obvious advantages of doing so, fewer than 5% of SMEs regularly assess the suitability of credit facilities at their disposal.

In this guide, we’ll give you the basic information you need to choose the right business finance provider for your company.

Finding a solution tailored to your business

The reason so few businesses regularly reassess their approach to finance boils down to a few overlapping misconceptions.

The first is that terms and conditions will not vary significantly across finance providers. While this may have been the case even a few years ago, increased competition in the finance industry and a growing awareness of the importance of business agility means that a wide variety of new finance solutions are available.

The related misconception is that once you’ve found a good business finance solution, there’s little point revisiting the options available to you.

Now more than ever, different finance packages are specifically tailored to meet different business challenges and it pays to know what is out there. If you’re a startup, you’re going to have different financing needs than if you’re an established company looking to grow your business.

Your company’s financing needs, its risks and its opportunities are all going to factor into which finance facility is best for you.

Finally, there’s a common impression that once your business has committed to a channel of finance, that it is “locked in.” This isn’t the case at all. It’s entirely possible to change how you manage your business finance.

The first step to finding a finance solution is to reassess your situation, gain clarity on what challenges your business is facing and take a fresh look at the full range of available financing options.

To illustrate the variables, here are a few commonly faced financing scenarios.

Rapid sales growth

One common finance pain point a new business often faces is in handling rapid sales growth. When a sudden increase in demand for a product or service occurs, it can be a struggle for a business to expand its capacity to fulfil that demand.

Shifting to a tailored facility such as invoice finance offers a few unique advantages over conventional finance facilities.

This strategy allows the business to improve its cash flow position by allowing it to draw money against sales invoices. The funding available through invoice financing increases in line with business revenues, eliminating the requirement for continual re-negotiation during a period of expansion.

These facilities also offer the advantage of being fast and accessible. Once set up, Scottish Pacific’s invoice financing solution has a 24 hour approval turnaround and has no requirement for real estate security. Adding to its versatility, it can be combined with a collections service, freeing business owners of the impositions of chasing up customers for payment.

Entering the international market

An estimated 93% of internationally active Australian businesses are involved in export. Expanding operations into overseas markets is driving demand for new working capital solutions.

When expanding to accept export contracts, Australian SMEs incur a sharp increase in capital and shipping expenses. Long payment terms of up to 180 days add to the working capital challenges and also often impact on domestic operations.

While a traditional loan can help with this transition, export finance is a tailored solution which can offer crucial added advantages.

Using export finance, sellers can receive finance against invoices raised on overseas customers. This frees up working capital.

Export finance also offers the security an international business needs to trade on open account terms (often using export credit insurance as added security), thus removing trust as a barrier to international sales.

Gaining a rapid competitive advantage

Australian SMEs seeking to rapidly expand (for example in the case of a buyout, merger or acquisition) are increasingly looking to asset finance as an adaptable and efficient finance facility. $34.7 billion was leveraged using asset finance in Australia in 2017, representing a 3.5% increase over 2016.

Asset finance allows businesses to rapidly access additional funding against existing infrastructure, equipment or property.

Adding to its usefulness for quick growth, asset finance frequently builds in flexible options for repayment, including interest-only periods.

A major first step in finding the right finance provider for your company is to get really specific about your unique business challenges. While added working capital will extend any businesses’ reach, finding the right finance facility will better position your business to squeeze every possible advantage from that capital.

Asking finance providers the right questions

Once you’ve taken stock of your businesses’ unique finance needs, the next step is to take a closer look at how prospective finance providers operate. There are three basic questions you should ask about any finance provider.

How strong is the collective expertise of their people?

A product is only as good as the people behind it. It’s therefore a good idea to drill into a finance provider’s website for information about the people you’ll be working with.

One useful people-focused metric to investigate is the experience of the finance provider’s executive team. Finding this information is typically as simple as searching their website. An “Our People” page or an annual report will typically give you a clear picture of the skills and experience which drive the finance provider’s vision and business practices.

Take Scottish Pacific as an example. This company’s mission and vision is clearly informed by an executive team with strong experience in financing SMEs and international business. The company’s blog features regular analysis and commentary from its executive team—another indicator of active and engaged leadership.

You’ll also benefit from looking for evidence of appropriate specialist expertise.

Let’s say your business is looking for finance to assist with import or export. The best finance provider for you will likely be one which incorporates a dedicated team of trade experts—people who can work with you to make sure your business is well-positioned to manage the added risk of international transactions.

Does the business finance provider have a solid reputation?

The finance industry is both highly competitive and heavily scrutinised.

This is great news for businesses in the market for a finance solution. With just a little research you can uncover a lot of information on the performance and reputation of bank and non-bank finance providers. This information is a great measure not only of ethics and business practice but also of a provider’s capacity to offer innovative and highly competitive products.

Trade Finance Global, an international body specialising in alternative finance and complex funding types, is a great place to start. Their yearly International Trade Awards recognise innovation and excellence in business finance solutions.

How will your data be handled?

These days it’s crucial to seek assurance of both customer confidentiality and efficiency in handling your data. The finance institution you’re working with should have clear and mature strategies for how it handles your data.

For example, if your goal is to secure extra working capital, can a prospective finance provider assure you of the privacy of your financial arrangements when dealing on your behalf with clients? Scottish Pacific’s invoice discounting solution, for example, explicitly guarantees a confidential line of credit when handling client’s invoices.

Then there’s the issue of whether the finance provider has a demonstrated commitment to helping you access your own information in useful ways. An easy way to establish this is to pick up the phone and ask a prospective finance provider representative what will be required from you in order to access up-to-date information on your account.

How long will you typically need to wait to speak with someone? Will you have access to a dedicated financial expert who knows your account and understands your business?

A useful follow-up question is to request information on their Account Manager to client ratio. It goes without saying that the fewer clients your Account Manager is handling, the better the service you’re likely to receive.

Finally, check that you can access your live data online. Non-bank finance providers are leading the way in providing comprehensive and mature client portals in which all your finance data is available in real-time.

Scottish Pacific’s online finance portal is one of the most mature products available, allowing customers not only to pull high-level reports on their finance facility but also to drill down into current availability, incoming payments and cash flow.

Choosing the right business finance provider isn’t a simple process. However, if you start with taking a fresh look at your businesses’ unique financing requirements and build on this to ask providers some basic questions about their expertise, reputation and accessibility, the chances are you’ll be pretty close to finding the best provider for your business.

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