Business finance - think 'value' and not 'cost' and keep it simple!
We’ve all heard the phrases “you get what you pay for” or “buy it right or buy it twice” and, no doubt, have experienced inexpensive products breaking too easily or not working quite as we’d hoped.
For many business owners, price remains the key focus when making funding decisions. While this thinking is may be correct when applied to goods, when it comes to business funding there is actually a more important driver to finding the right solution: value. There are many definitions, but in Catalyst’s world of solving business’ cashflow issues, value comprises three main elements: simplicity, transparency and flexibility.
It goes without saying that anyone running a business needs to keep an eye on costs, but there’s almost always more to consider than the simple headline price. This is particularly true when looking for funding to maintain cashflow or help business growth. Every funder works differently and their products and services vary subtly – and sometimes not so subtly. Focusing solely on headline price makes it extremely difficult to establish the overall value of the various solutions and can lead to a business becoming tied into a solution that isn’t really right for them. While the price may have an immediate, short-term benefit, it will be the value elements that deliver the true financial benefits over the long-term.
It’s often extremely difficult to obtain complete information on each funder and the funding solutions they offer. Catalyst always recommends business owners researching as many options as possible before making a decision and, to encourage transparency in the industry, we’re always happy to provide an objective view of competitors’ offerings. Focusing on value doesn’t mean that price should be ignored, but research will help see beyond the cost alone and understand the longer-term benefits of the different types of funding.
So, when it comes to Selective Invoice Finance (SIF) - or spot finance as it’s also known - how do the three value elements shape up? Simplicity is what it says: simple. If the funding structure or process is complicated and requires a degree in higher maths to get to grips with it, then it will be hard to know if this is the best solution for your business. SIF may not be quite as simple as a straightforward bank loan, but it doesn’t have to be rocket science either.
A lack of simplicity can also mean a lack of transparency. There are often hidden costs, even from some SIF providers, and this can detract from overall value of the funding. It’s important to ask about these costs up-front. Equally, funders need transparency from the businesses they fund to make sure SIF is, in fact, the right solution. In Catalyst’s case, our SIF solutions have a pre-agreed daily rate on funds advanced with no hidden set-up, non-utilisation, exit or transaction fees. We’re not the only company to do this, but the model we work with ensures business owners can work out exactly how much the funding will cost them on a daily basis and are never met with unexpected surprises.
Some SIF providers are website-based only (known as platform funders) so they will provide online FAQ areas on their website and provide access to support teams. Catalyst has always taken the approach of developing collaborative personal relationships with each of its clients, enabling us to really get to know client’s businesses and ambitions, ensuring our nationwide team of account directors provides a bespoke product that best suits each business’ needs.
Which brings us to flexibility. This is where value over cost really comes into its own. A low headline cost is great, until you don’t need the funding solution anymore and realise you’re locked into a facility based on the whole of turnover of your business for two years, with punitive exit fees and a levy for not using the funds you only possibly needed in the short-term.
SIF in particular offers flexibility that many other funding solutions can’t or won’t. In many cases, and with Catalyst Business Finance in particular, SIF does not tie businesses into long-term contracts. Catalyst has created a model where funding can come through one invoice, a few, or many and the funding can be used on an ‘as needed’ basis as often as required – similar to an overdraft.
However, in some cases, the funding need is just a one-off, short-term requirement and that’s fine too in the case of SIF. Once the funds used have been repaid, the client can walk away and get on with the business of, well, getting on with their business.
The value of simplicity, total transparency and complete flexibility can’t be underestimated when it comes to business funding. Looking beyond the headline cost and gaining a true understanding of funding value is what has helped thousands of UK businesses stay on track and now make the most of a strengthening economy. It’s something we value too and that’s what makes working in SIF so exciting.