If you’ve ever spent any decent amount of time following start-up and small business stories one thing you will always find as a challenge is finance. Many small businesses suffer due to cash flow constraints and this really puts a drag on growth. It doesn’t have to be like that. While you may not be able to get outright business loans there’s a whole world of products that can help you get over the line. Collectively these are referred to as trade finance.

These are often but not always offered by microfinance institutions and other financial intermediaries such as good old banks. They help businesses meet specific funding gaps and are tailored to specific situations. Let’s get an understanding of how some of these arrangements work.

Trade credit

The simplest one of them all this simply involves the seller allowing the buyer to pay for items within 30 or 60 days. This is dependent on the trust between the two based on prior dealings or references.  They can also be arranged with the bank of the buyer acting as an intermediary to the transaction and therefore guaranteeing the creditworthiness of the buyer.

Cash advances

Cash advances are essentially a prepayment by the buyer on an existing order. This way the seller has funds to manufacture or otherwise finance the production of the goods or services to be rendered. This is a pretty straightforward arrangement that can be worked into all trade agreements.

Receivables discounting

In this arrangement, a financial intermediary (such as a discount house) buys your receivables from you. Say you sold on credit and the amount is payable in 60 days, you being smart would prefer to have the money now. The discount house would assess the creditworthiness of the debtor and offer you an amount for the receivable. The name Discount House stems from the fact that they will pay a percentage of the total invoice hence they discount the invoice. Discount rates can be fairly high for small businesses. This is sometimes referred to as debt factoring.

Term loans

These are generally loans that are given for a specific period but not a specific purpose. Provided by financial intermediaries and applied for based on your needs they have a stipulated (usually linear) repayment schedule that covers the principal and interest. They can be used as bridging finance to smooth operations.

Asset Finance

Asset finance, as the name suggests, is a method of financing the purchase of assets. Say your business requires a piece of machinery that is out of your reach as an outright purchase. An arrangement can be made through the seller or an intermediary to pay off the item over a period. The payments would be small and manageable. Again this depends on the ability to assess the creditworthiness of the buyer.


Leasing is a similar arrangement to asset finance with one major difference; leasing does not transfer ownership meaning you do not buy the equipment, you pay for the rights to use the equipment for a specific period. In a lease arrangement, you have all the rights and responsibilities an owner does during the life of the lease but you do not retain ownership of the item at the end of the arrangement.  The payments are usually smaller than those you would have in asset finance because of the lack of ownership transfer.

Order finance

Order finance is a pretty useful tool for small businesses that aim big and can be arranged in many different ways. In essence, you get an order that is perhaps too big for you to fill or perhaps the payment will only come later and you have a funding gap. A financial intermediary provides you with the funds to fulfil the order and you then pay back the principal with interest when the order is paid for. Similar to your term loan but for a specific order and not your day to day business operations.

While finance will always be a challenge to small businesses it doesn’t have to be their undoing. Through products like the ones above and many more small businesses can find ways to navigate the terrain. Shop around whether it’s for suppliers and microfinance institutions that can offer you such facilities.