03 Feb Can Combining Financing Options Help Meet Your Business Needs?
When it comes to securing capital for your business, one funding source can’t always meet your needs. You might need fast cash for equipment while also wanting long-term capital for expansion. Relying on just one product could limit your ability to grow or react to challenges.
That’s when combining financing options can be a smart move. Each funding product serves a distinct role, and you layer them into a personalized financing strategy designed to meet your specific needs.
Benefits of Blending Financing Solutions
Increasing your access to capital is the most obvious benefit of combining financing options. But the deeper advantages improve your chances of long-term success. With a layered funding approach, you also gain:
- Flexibility: Various financing tools enable you to tailor repayment schedules and terms to meet each specific need.
- Risk Diversification: Spreading out your financing reduces your risk if one credit line tightens or interest rates change.
- Cash Flow Optimization: Certain products can inject quick capital to bridge cash flow gaps, while other loans ensure stability.
- Improved Strategic Planning: Having access to multiple funding streams lets you make proactive decisions rather than reacting to financial strain.
- Strong Negotiating Position: Securing funding through more than one channel reduces the lender’s risk, allowing you to negotiate better terms.
If you’re running a franchise and planning to open new locations, you could combine a private lender’s commercial real estate (CRE) bridge financing for the property with a bank loan for remodeling costs. You benefit from low interest rates from the bank and the flexible repayment structure from the private lender. Each dollar is working for a specific purpose.
Types of Financing You Can Combine
Between private funding companies, alternative lenders, fintech platforms, and traditional banks, you now have more financing options than ever before. Those choices give you more power to align your funding with your goals.
The best loan pairings complement each other. Use a long-term loan with short-term financing. Secure fast, unsecured funding while waiting for a government-backed, low-interest loan. Layer a product designed for specific purchases with a more general source of capital.
Common loan pairings include:
- Term Loans + Business Credit Line
- Equipment Financing + Merchant Cash Advance (MCA)
- SBA Loans + Short-term Financing
- Accounts Receivable Financing + Business Line of Credit
- Franchise Loan + Revenue-Based Financing
- Real Estate Loan + Equipment Financing
Say you are ready to expand your successful clothing boutique in downtown Chicago by offering seasonal inventory and online shopping options. You secure non-bank financing for retail businesses in Chicagoland to stock up on gear for the upcoming winter season and a business line of credit from a fintech lender to fund your incremental online rollouts.
You cover all the bases by combining local knowledge with advanced lending technology and a specific funding product with a general capital source. A well-structured financing plan mixes loans and lenders with complementary strengths to meet your needs most effectively.
How to Decide What Mix Is Right for You
The right financing combination depends on your financing goals, financial needs, business model, and operational priorities. You’ll need a completely different financing approach if you’re looking to improve short-term liquidity and stabilize operations, versus investing in a quick and long-term expansion.
Here’s a simple framework to guide your thinking:
- Define your purpose. What exactly do you need the money for?
- Assess your timeline. When will you need the funds, and when do you expect a return on your investment?
- Evaluate risk tolerance. Are you more comfortable with variable or fixed payments?
- Review your financials. What loan structure will work with your current revenue and obligations?
Based on your evaluation of your needs and financial pairings that work well together, you can develop a financing strategy that matches your capacity to manage multiple funding sources and empowers you to move forward with confidence.
Common Pitfalls to Avoid
Combining financing options does require careful planning. Each loan product adds a new set of terms, repayment schedules, and obligations. It’s essential to understand how these interact to avoid overextending yourself.
Watch for financing combinations that are too similar. If multiple loans require the same assets to secure your funding, you could run into collateral conflicts. Or, if all your payments are due on the same day of the month, you may not have the cash flow to cover operating expenses. Doubling up on products with the same term lengths, repayment schedules, or collateral can hurt your financing strategy.
You need to understand the cost of each loan before combining them. Convert all borrowing costs into an Annual Percentage Rate (APR) so you can add the different fees and interests into a cohesive plan. Ideally, choose financing products and lenders with very few fees and penalties. Those costs can add up quickly when you use more than one loan.
The borrowing cost also affects your credit score. You can harm your score with multiple hard inquiries or by increasing your debt-to-income ratio. Research your loans thoroughly before allowing a hard credit check, and limit the amount of financing you take on in proportion to your revenue.
Choosing the right funding mix and avoiding overlapping liabilities can be a daunting task. That’s where working with an experienced business loan broker or financial advisor can help you map out a clear structure.
The Role of a Business Loan Broker
A business lending broker works with a network of lenders to help you craft a customer financing package that fits your business model and long-term vision. They have the connections and experience to avoid the common pitfalls of combining loan products.
They’ll also help you:
- Compare loan providers
- Access exclusive funding sources
- Negotiate competitive rates and terms
- Understand how different funding types interact
- Manage the application process and documentation
- Tailor terms to your revenue cycle
- Work with lenders on your behalf during the life of the loan
A broker streamlines the process and keeps your best interest front and center. They are a valuable connection for owners who need to save time and money while crafting a personalized financing strategy.
Yes, When Carefully Planned
You can meet complex and evolving business needs by combining financing options. Layering solutions designed for different functions is like twisting strings together to make a thick strand of rope. It’s a more flexible and resilient financial foundation for your business.
Just be sure to evaluate each decision carefully. Consider working with an expert lending broker to avoid common challenges and craft a high-quality financial plan. With a carefully crafted strategy and a customized financing mix, you’ll be able to seize opportunities and navigate challenges better than ever before.