Running a business inherently carries a significant amount of financial risk. What will you do if a client doesn’t pay on time? What if you lose a contract? What if vital equipment breaks down?When your business is thrown into situations of unexpected financial stress, a standby finance facility can be the lifeline that not only saves your business, but keeps things running smoothly.
Quick takeaways if you’re in a hurry:
- A standby finance facility allows you to get access to funds much more quickly than a regular loan to address any unforeseen cash shortfall.
- Unlike regular financing, there is no obligation to draw on the funds or pay any interest or fees unless you do. It’s essentially a free preemptive arrangement.
- A Fifo Capital Business Partner can work with you to find potential risk areas, and help you minimise and prepare for them as appropriate.
Read on: How a free standby finance facility can save your business
[Estimated reading time: 5 minutes]
What’s a standby facility?
A standby finance facility is an optional funding arrangement with a financial institution. It’s not the same as a loan, but rather a way to secure access to funds (such as a loan) at some point in the future.
The purpose of this is to make it possible to get your hands on the money you need at a moment’s notice, without jumping through any hoops when the pressure is on. It also means you can negotiate the arrangement from a position of strength, not while you’re in the middle of a crisis. Scrambling for financing after disaster strikes can often mean being forced to submit to unfair terms.
What kinds of cash flow problems are standby facilities for?
Standby facilities are meant to cover any kind of financial shortfall, but there are some specific situations in which these can come in handy:
- Getting funds to take advantage of a growth opportunity
- Covering costs after an unexpected loss of revenue
- Covering for seasonal fluctuations in revenue
- Getting an advance on outstanding invoices to cover costs.
Setting it up is simple
To set up a standby facility for your business, you should have a talk with one of our Fifo Capital Business Partners. They’re experienced and highly capable business consultants who can help you identify potential areas of risk.
Depending on your business’ particular situation, they’ll then be able to advise you in regard to what type of standby facility would be most appropriate, and come up with a plan for how to meet your future cash flow needs.
Two types of standby facilities by Fifo Capital
There are different types of standby facilities that Fifo Capital offers that serve slightly different purposes, depending on whether you’re dealing with a cash timing issue or a simple shortfall in capital.
Short term business loan
If your regular revenue doesn’t allow for large “lumpy” purchases like acquiring new equipment, or funding new projects up-front, then a short term business loan would be the kind of standby facility to look into.
Fifo Capital’s business loans allow you to manage the amount and the duration of your loan, so you only borrow as much as you need, and you can pre-arrange how long you need to pay it back. Additionally, payment plans are flexible, so you can pay the loan back more quickly when possible.
If your financial issue is more related to timing, then invoice financing is for you. For example, if you completed a project and need to pay your workers today, but the client’s invoice won’t be due for another week or four, you’ll need a way to come up with the funds for wages immediately.
Fifo Capital will buy the outstanding invoice from you for most of its total value and proceed to collect the payment from your client when it’s due. This way you have cash in hand within hours instead of weeks.
It doesn’t work like a collections agency, which pursues debtors for overdue payments. Rather, invoice financing is designed for payments that aren’t due yet, and works as a quick and easy cash-advance of up to 90% of the original payment value.
It’s literally free
The most significant reason to go out and get a standby facility is that it’s free to do until you actually use it. Until you draw on them, standby facilities are essentially a pre-emptive arrangement for future business. You don’t have to pay anything up front, and you’re not obligated to ever use the facility if you don’t need it.
You and your financial institution both win
Fifo Capital offers these kinds of arrangements because they’re win-win. By setting it up ahead of time, Fifo Capital can be assured that you’ll use them if and when your business needs financing. You, on the other end, can rest easy knowing that if you run into a cash flow issue you already have arrangements in place, ready to go.
Ready to get your own standby facility? Get in touch today!