Are you planning to build a new warehouse for your continuously growing business? If that’s the case, you’ll need to consider several factors first. This includes the concept or idea, materials, and the budget you would allocate for it. However, you have to pay close attention to your financial estimates when building a warehouse.
Otherwise, it may lead to some budgetary problems you would find difficult to handle. A warehouse is necessary for all types of business and can help accelerate your company’s growth and reduce operational costs. However, building a new warehouse is absolutely no cheap trick.
Because of this, most businesses opt for different financial options that will help their business grow without releasing tons of money instantly. You may check for more info here and decide on one that will suit your needs. However, every option you make has its own risks. With that said, it’s important to carefully plan everything before coming up with a decision.
If you don’t know where to begin, the following are some options you can consider in effectively financing your warehouse needs:
1. Bank And Small Business Administration (SBA) Loans
When seeking an additional source of funds, what often comes to your mind? Most probably, it’s the bank. Banking is the most common type of business financing used by almost all businesses to meet their needs, such as working capital, real estate, expansion, and purchasing additional equipment.
Depending on your needs, a banking loan usually comes in two terms: short-term and long-term. Of course, the long-term solution will yield more interest than the short-term. Also, this type of loan typically requires collateral, especially if you’re new to the industry. There are instances when you have to prove your company’s stability to get approved, such as a consistent flow of revenue. You’ll most likely encounter another type of banking loan is the term SBA loan. This is guaranteed by the Small Business Administration to help them grow and become one of the strongest businesses in the world.
However, SBA loans are difficult to get because of the requirements you have to meet, such as a good credit score, consistent flow of revenue, robust business plan, and more. Despite these qualifications, many business owners still opt for SBA loans because it offers flexibility in using the funds.
2. Credit Card Financing
If you need a small warehouse, equipment, and other materials for your business, you might need to try credit card financing. It could be in the form of cash advances or simply your credit card. This will help you save a lot of hassles from applying for SBA loans. However, if you plan to build a vast warehouse, this type of business financing may not be the right option for you.
However, it may help you build a small warehouse if you need immediate support for your growing business. Credit card financing is also risky, so you want to keep it on short terms to avoid hefty charges and interests on your bills. That’s why it is not ideal for building massive warehouses, even if your credit limit permits you.
Furthermore, you might want to look for a credit card that offers many benefits, such as cash backs or airline miles. These rewards may come in handy, especially if you’re planning to give your team a boost in productivity.
3. Business Line of Credit
Another type of business financing that may help you is a business line of credit. It is also a loan usually given to small businesses that functions like a credit card. So, this is not ideal for massive warehouses but may help you build a small warehouse to support your immediate demands.
Depending on your cash flow and credit rating, it will provide you with a specific amount. As mentioned above, it works like a credit card. So, you’ll only pay for what you need. For example, you have a line of credit worth USD$100,000 and only used half of it. Therefore, you only have to pay USD$50,000 and the interest for the amount you borrow.
Once you pay your bills, the money will start to replenish, and you’ll have access to use it again. It may grow depending on how good you are at paying your bills on time.
4. Invoice Factoring
Invoice factoring is a financing system that allows you to sell your unpaid invoices to a third-party company at a favorable discount. Usually, factoring companies buy invoices at a 20 percent discount. For example, if the total value of unpaid invoices is USD$150,000, the amount you may receive is 80 percent of it or USD$120,000.
But the good news is, you don’t have to waste your time collecting payments as this will be the job of the factoring company who bought all your invoices. The only bad thing about this is that you won’t receive the full payment.
However, it will help you alleviate cash flow problems, especially if you need to release money for new projects that offer excellent returns, such as a new warehouse.
5. Invoice Financing
Invoice financing is similar to factoring, but there’s a slight difference between the two, and that’s the amount of payment you can receive. Unlike the factoring system, invoice financing allows you to access 100 percent of your entire invoice value. With this, you don’t have to wait for other companies to pay for the products you already served.
Invoice financing works like a line of credit but with outstanding invoices as collateral. The third-party company will match the amount you plan to borrow against your unpaid invoices.
6. Crowdfunding Financing
Crowdfunding is one of the most popular ways to earn money online. It is usually used to promote charities and raise money for other purposes, such as environmental changes. With crowdfunding, you allow interested people to give you additional capital. Unlike other business financing options, this is not a loan and will not demand interest from you.
However, you have to return something to people who might give you money. It could be in the form of equity or early access to your soon-to-be-launched products or services. However, crowdfunding is not easy to achieve and may take a long time to reach your goals. So, it’s not an ideal option for those who need immediate funding.
Final Words
When planning to build a new warehouse, you might need to save funds for this. However, savings take time. In this case, you might need to consider some financial options mentioned above. But remember, every option you choose has risks, such as interest rates, additional charges, and penalties for late payment.
So, plan and analyze every option carefully based on your needs, and don’t borrow money if you don’t need it to avoid growing interest rates.
