5 ways to obtain liquidity for your business

14/03/2023
5 ways to obtain liquidity for your business

Companies experiencing financial difficulties can turn to alternatives such as crowdfactoring or crowdlending to obtain liquidity

Absolute stability does not exist in the business world. To a greater or lesser extent, all companies go through good times and turbulent periods in the economic sphere. In the latter case, to obtain liquidity quickly can mean a guarantee of survival or, on the contrary, the definitive bankruptcy of the business.

But what does liquidity consist of? This term refers to the ability of companies to have cash on hand or to quickly convert their assets into cash without losing their value. When there is a lack of liquidity, the organization cannot meet its short-term expenses.

Financial health is a central aspect of any firm. For this reason, various mechanisms have been developed to prevent this type of situation.

Suppose, for example, that an entrepreneur must pay an outstanding invoice immediately but does not have cash on hand. To obtain liquidity will become one of his top priorities.

He will try to obtain financing from external sources to get out of this situation unscathed. Although this means incurring a small amount of debt, it will help you survive and continue your activities. Then, when your financial state is more favorable, you can repay the investor or lender.

Anticipating future needs and maintaining constant control over your accounts is essential to escape these scenarios. If, despite this, the company still needs to obtain liquidity, there are five alternatives it can take advantage of.

1. Loans or traditional credit

Loans are one of the oldest financing mechanisms in history: they were already used in Ancient Rome. Although their format has evolved over the centuries, their work remains the same.

The business owner who ties to obtain liquidity turns to entities such as banks, which lend him capital in exchange for interest. This interest is the lender's profit, which will be higher as the amount requested, the duration or the risk of the operation increases.

The borrower enjoys the full amount of money but will have to repay it before the maturity period stipulated in the contract, together with the agreed commissions. Generally, he does not do so all at once but can pay it back in several installments.

If, on the other hand, the manager opts for a loan, he does not have to use all the money but can limit himself to using only the amount he needs. As a result, he will only pay the interest on that part, even though it is usually higher.

Both loans and credits are very popular resources. Both make it possible for many people to finance their projects, such as studies, or to purchase certain products, such as a car or a house. For their part, thousands of companies resort to them to obtain the necessary impulse to take off or to obtain liquidity and overcome a more arid period at a financial level.

2. Crowdlending

Crowdlending is precisely one of the most recent developments in lending. Not surprisingly, it is also known as crowdfunding of loans.

Its operation is practically identical to that of other loans. An organization must obtain liquidity and request a loan, which it will later repay with interest. But crowdlending introduces a radical difference: in this case, the capital is provided by individual savers.

It is an alternative characterized by decentralization since it is a sum of people who grant the resources to the company instead of a bank. In this way, all of them can obtain a return on their savings while supporting the growth of various initiatives.

This method of crowdfunding has two major advantages. First, it is a very flexible option since both parties can negotiate the transaction terms and find a lender or borrower that suits their needs.

For another, the firm seeking to obtain liquidity is not dependent on a single source of credit. Thus, if one of the investors decides not to support it any longer, it can cushion the effect of this withdrawal thanks to the other savers. But, on the other hand, if it has only one investor, it will be at its mercy, and losing its backing will considerably impact its accounts.

Crowdlending and crowdfactoring are two alternative financing mechanisms that help companies to obtain liquidity

3. Crowdfunding

Earlier, we said that crowdlending was crowdfunding of loans. But what is crowdfunding?

This is one of the participatory financing systems preferred by companies seeking to obtain liquidity because, unlike other methods, crowdfunding does not oblige them to return the amount of money they have been granted to investors.

For this reason, it is widely used by businesses or projects of a social and cultural nature that need a springboard to launch themselves into the market. To do so, they are nourished by the voluntary and generous contributions of people who believe in their potential or are aligned with their values. They contribute what they can to make it possible for them to take off, not to multiply their wealth, which makes crowdfunding one of the most representative examples of ethical investment.

Although they can usually be considered donations, there are two types of crowdfunding that reward the people who support the project and help them obtain liquidity.

In reward crowdfunding, sending them a gift or including their name in the acknowledgments is common. On the other hand, equity crowdfunding gives them a part of the firm's capital. In this way, if the company is prosperous and makes a profit, the contributors will share in the profits. However, if the project fails, they cannot claim the money back.

4. Crowdfactoring

Organizations with outstanding invoices can use crowdfactoring to obtain liquidity. Through this system, they assign the collection rights of such invoices to investors, who advance them that amount. In return, the investors receive interest, the percentage of which depends on factors such as risk and the loan duration. When the company's customer pays the invoice, the company will return the money to the investor.

If it is a financial institution that delivers the capital, it would be a factoring operation. However, if, as in the previous cases, the resources are provided by a group of savers, we would be talking about crowdfactoring.

The advantages of diversifying the sources of credit in crowdfactoring are the same as in the other methods: increased flexibility and reduced risk.

But remember that the customer may incur a debt and not pay the invoice when the due date expires. Who then assumes the risk of non-payment: the investor or the business?

In recourse factoring, the most commonly used option, the company has to return the money to the saver, as it is responsible for meeting the debt. In non-recourse factoring, the investor must demand payment directly from the client, as the firm is exempt from liability.

These operations are usually carried out through online alternative financing platforms, such as Inversa Invoice Market, which allows businesses to upload their invoices so that they can be found by investors who wish to obtain profitability and support sustainable projects.

5. Tax deferral

Another way for companies or freelancers who wish to obtain liquidity is tax deferral, a technique the tax authorities allow if it is carried out under their conditions.

Instead of paying taxes at the time dictated by the tax authorities, it is sometimes possible to delay the payment date and pay this amount later. This allows companies to maintain liquidity at critical times and avoid destabilizing their financial situation without being forced to take on debt or commit other assets.

It is important to remember that not all taxes can be deferred. For example, VAT or the annual liquidation of Corporate Income Tax, are quite flexible, but the same is not true for Corporate Income Tax installment payments.

The delay in the payment must be requested during the stipulated term to pay it, and if the debt is less than 30,000 euros, it can be managed directly with the pertinent organism. Another option is to resort to a bank guarantee: the bank pays off the debt, computed in CIRBE, and the company will have to pay commissions.

Finally, surety insurance can be contracted for tax deferral. This is a more advantageous alternative for organizations since the debt will not be reflected in CIRBE, and they can pay it off in installments if they pay the annual installment of the policy.

Again, if the debt is less than 30,000 euros, companies have six months to repay it. In the case of the self-employed, this period increases to twelve months. Finally, when the debt exceeds 30,000 euros, it can be paid off in three years.

In short, these five methods allow companies to obtain liquidity at crucial moments to stay afloat. There is no right or wrong: each firm will choose the one that best suits its circumstances.

However, some of them, such as crowdlending or crowdfactoring, shun conventional entities and use people from the real economy to finance businesses, thus maximizing the benefits for both parties.


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