Globally speaking, the tech industry is arguably the most robust of industries at the present moment, in spite of its volatility – with the UK leading the charge on tech investment and development. Technological advancements have defined the last three generations, and continue to reshape the modern world at an increasing pace.
Tech start-ups enjoy immense popularity, especially where their research and proposed products show promise in underdeveloped corners of the market. But even with this popularity, it can be hard for underdog developers or inventors to get off the ground financially. What funding options are available for a small tech business to start operating?
Working Capital Loan
A working capital loan is a form of financial product available to businesses, that is designed not to assist in a long-term investment or business expansion but instead to plug a short-term gap with regard to operating expenses. Working capital loans are commonly used by seasonal businesses; a good example might be a ski chalet in the Alps, which enjoys extreme popularity during the winter months at the expense of a steep decline in income during the off-season.
Tech start-ups might use it to fund day-to-day operations while in a research and development phase, to offset the overall impact of costs when there is no product yet to sell. These loans are relatively quick and easy to obtain but have their own caveats. They tend to be unsecured, which in many cases can mean individual business owners are rendered personally liable. Interest rates can also be high, in order to cover the relative increase in risk on the part of the lender.
Term loans are much more conventional form of lending, typically offered by banking institutions or commercial finance outlets. They are as simple a loan structure as you can design, offering businesses a lump-sum loan with a fixed repayment period. This period can differ from agreement to agreement but is typically a period of years.
Term loans are largely secured loans, with property or other business assets used as collateral. This also allows the interest rate to be set relatively low, though this can also be impacted by the repayment period agreed upon with the lender. Term loans are extremely useful for funding new innovation and expansion, particularly if you have a roadmap with a clear route to market.
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Merchant Cash Advance
If you are an already-established tech venture with an active market presence, you might be seeking funding to boost cash flow in service of new innovation or expansion. You could feasibly do this with something called a merchant cash advance, which lends you money based on your present and future debit or credit card revenue. You essentially receive a period of your future profits in advance, to be repaid as a percentage of your monthly takings.