Alternative Financing You May Not Have Heard Of
Business Money Today - February 1, 2010
Need capital to keep your business going or to implement new growth initiatives? Well, just run down to your local bank. Wait .banks are still not lending to small businesses.
But, banks may not be your only option.
For decades, there have been many financing programs, some backed by banks but most not, that focus on assets based lending or that focus on the strength of the business - not just the business owner.
Assets based lending is essentially using the financial asset of a business to secure a loan or advance for working capital, general operating expenses or even capital purchases.
This type of financing is more focused on the business asset generated and how easily or safely the asset(s) can be converted in to actual cash.
Accounts Receivable Financing: If your business generates customer invoices, there are finance companies out there that will purchase your receivables, advance your company up to 90% of the invoice amount, collect the money from your customers, and then refund you the remaining 10%.
These companies do not lend based on your credit or your company's balance sheet but focus mostly on your customers' strength in repayment.
This is called Accounts Receivable Financing and is a great way for businesses to better manage their cash flow, purchase needed inventory or cover operating expenses. Why wait 30 or more days to be paid by your customers when you could take that capital and generate even more revenue (and profits) for your business.
Purchase Order Financing: Does your business have customer orders in hand but not the working capital to complete or fulfill those orders? There are financing companies that will provide capital advances based on these unfinished orders; termed Purchase Orders Financing.
These Purchase Order Financing companies will advance your business, based on the amount of the purchase order, the capital to complete the job or order. This means having the needed capital to purchase inventory and supplies or even hire additional needed labor. Whatever the need, purchase order financing is a great way to use or leverage already acquired business to get the capital your company needs to grow and succeed.
Other benefits of purchase order financing are 1) can also allow your business to take advantage of trade discounts with your suppliers by paying for goods and supplies within discount periods. 2) provide the ability to bid on jobs that may have eluded your business in the past due to your a lack of capital and 3) approval is more focused on the strength of the purchase order rather than you or your business's credit history.
Business Cash Advance: Many businesses, just by their nature like service organizations or retail operation, do not generate business financial assets like the ones mentioned above. But, there are still ways that they can acquire needed working capital to grow their business or to meet immediate expense needs. If your business accepts credit cards as payment from your customers, there are financing companies that will advance your business capital against (and get this) your FUTURE credit card receipts.
Benefits include receiving needed working capital today that can be used for any business or personal need, leveraging your businesses ability to generate future income, low repayment requirements based on a small percentage of your future sales - small enough not to harm your business's future cash flow needs (as these advances are not loans they do not have set monthly payments - you only pay as your business earns future income) and these financing companies are more interested in your future sales ability (the strength of your business) than your credit history.
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Equipment Leasing: Leasing needed business equipment offers many benefits over actually purchasing said equipment. For example, leasing does not require large down payments of cash - cash that can be put to better use inside the business for meeting current expenses or the ability to obtain and employ more expensive equipment than may be otherwise available to the business . Many times, leasing offers lower monthly payments as some leases can amortized amounts less than the full cost or market value of the equipment. Further, leases may be easier to obtain for weaker companies as most do not underwrite these lease facilities the same way that banks do when underwriting traditional loans.
Business and Personal Loans: There are many non-bank lending companies that have secured and unsecured loan products to provide businesses of any size access to working or operating capital. Some of these products are focused only on businesses and some are personal loan products that can be used for business purposes. Whatever the case, the benefits of these products are that, due to the way that these entrepreneurial lenders design their underwriting requirements, they usually do not carry as high as approval criteria as traditional lending - meaning that to get approve is much easier, with less requirements, than regular bank loans.
The down side is that some of these products, while they try to be very competitive, can be a bit more expensive than traditional loan products. But, keep this in mind, if you have no other alternative and believe in what you and your business can do with the added capital, then the expense is far outweighed by any potential benefits. It just has to be managed properly.
In business, especially for start up businesses or companies that don't yet comply with traditional loan underwriting, accessing cash for grow or expansion (or even to just meet current obligations) can be a daunting task. But, instead of being intimidated by this process, let that entrepreneurial spirit kick in. Get creative and find ways to make these sources of capital work for you and no the other way around. Further, with our current credit crunch (banks just not lending) these types of financing alternatives may be your business's only option going forward - regardless of stage and wherewithal.
Lastly, while the goal of any businesses is to obtain needed capital from traditional financial institutions like banks (it is kind of like validation for all your hard work when your bank approves your business for a loan), it is not always practical to do so - banks are very selective. But, by using these and other types of alternative financing options, many business owners may find that they can leverage these capital sources to grow their business to a point that they do become creditworthy in the eyes of their financial institutions - the irony is that when this point usually comes, the business in question no longer needs outside financing.
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Alternative Financing You May Not Have Heard Of - Business Money Today