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How to Cover the Costs of Transitioning to New Business Premises

Businesses routinely outgrow their current premises for countless reasons. For SMEs pursuing growth and expansion, transitioning to a new (and larger) place of work is often essential. The same can also be said for businesses looking to expand into new markets, or where the facilities needed to sustain business operations are not available at their current address.

From the consolidation of separate offices to downsizing for cost-cutting purposes, businesses of all shapes and sizes routinely set their sights on new premises.  Many of them find themselves in something of a predicament, having insufficient cash reserves on-hand at the time to fund the transition.

Unfortunately, any delays or disruptions that prevent the business from moving seamlessly to its new location could have costly implications.

What Options Are Available to Fund the Purchase or Lease of Premises?

For SMEs with limited cash reserves, often the only realistic option is to seek external funding. A broad range of commercial loans and cash advances is available, but which are the most popular funding options for transitioning to new business premises?

In terms of flexibility and affordability, what are the best options available for SMEs?

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Business Cash Advances

One of the more flexible and affordable facility is open to most types of SMEs is a business cash advance (aka merchant cash advance). This is an unsecured credit facility issued against future card transactions, which can be used for any legal purpose. The business is offered a lump sum payment from the provider, who then subtracts a fixed percentage of subsequent monthly card transactions to gradually repay the balance (usually 10% to 20%). Repayments are tied to takings for maximum flexibility and all borrowing costs are fixed in advance.

Bridging Loans

Bridging finance can be a uniquely cost-effective facility when repaid as promptly as possible. Bridging loans are issued against assets of value, in a similar way to commercial mortgages. The difference is that with bridging loans, the funds needed by the business can be accessed within a few working days, and of the debt is repaid as a single lump sum payment within 1 to 12 months (no monthly repayments in the interim) with monthly interest rates as low as 0.5%, huge savings can be made by repaying a bridging loan at the earliest possible juncture.

Commercial Business Loans

Most commercial business loans are issued in the form of secured loans, where assets of value are used as security (collateral). Property (residential or commercial) is the most common asset used to secure a business loan, but some specialist lenders are willing to accept other assets of value – business equipment, machinery, vehicles, and even company shares in some instances.

Secured commercial loans are available only to businesses with significant on-hand assets of value. On the plus side, overall interest and borrowing costs can be comparatively low and flexible repayment terms are available up to several decades (in the case of commercial mortgages).

Invoice Financing

Invoice financing and invoice factoring provide SMEs with a flexible and affordable way to maximise cash flow efficiency. In both instances, the SME is able to ‘cash in’ outstanding invoices from clients, and access up to 90% of the money they are owed in as little as 24 hours.

The facility is then repaid at a later date when their own clients settle their invoices, plus all agreed interest and borrowing costs. For organisations that spent much of their time chasing outstanding payments, invoice financing can hold the key to optimum cash flow efficiency.

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