Small Business Funding Alternatives

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HOW DID YOU LEARN ABOUT ALL THE DIFFERENT FUNDING OPTIONS AVAILABLE TO PEOPLE EVEN AFTER BANKS TURN THEM DOWN FOR A LOAN?
 
Through hours of study and a training course with the American Cash Flow Association as well as working with a Mentor for the first two years. 

And, it’s been interesting for me to learn that MBA graduates and students and others in the financial services realm you would think would be very knowledgeable about the options available in the cash flow industry for the funding needs of small businesses are not aware of these tools at all (or very little).  Or, they do not give enough import to these options (if they are aware of them) which are so desperately needed by small businesses.  The tools of the cash flow industry seem to be glossed over and not really acknowledged as the option they are. 

For instance, I met with an MBA student (Electrical engineer) who was in her last semester before getting her MBA and she happened to have a class on our funding options that semester and a homework assignment on them the same weekend we met and talked.  So, she told me, “thank you very much!” and took my literature and flyers I brought to our meeting and used to complete her homework assignment!
 
WHO ARE YOUR CLIENTS?

Almost any business that has a piece of paper to leverage.  Construction is sometimes difficult because of retainage fees but it can be done too – by companies that specialize in construction. 

Some examples, though, are:

Medical facilities of all sorts
Manufacturing
Service industries of all types – staffing agencies, trucking, fabricating, engineering, printing, import, export and the list goes on and on…
  
IN YOUR YEARS OF EXPERIENCE, WHAT OBSERVATIONS CAN YOU MAKE ABOUT SMALL BUSINESSES ON THE THRESHOLD OF GROWTH?

I would say that I have observed that oftentimes they are afraid to go for the larger clients and faster growth because of fear of the resultant cash flow issues.  But – that need not be the case! 

Now, the small business owner can do just that and know that the tools offered in the cash flow industry can assist them in accomplishing faster, more rapid growth!  It all goes back to educating and making people “aware” of the options available to them. 

But this, too, is one of the many reasons I love this business I have found!  I like being able to help people and when I can do that and myself in the process, I call that a win/win situation!

WHAT IS THE CASH FLOW INDUSTRY ALL ABOUT AND HOW CAN IT HELP?
 
In a nutshell, it’s about leveraging a businesses “liquid” assets to  self-finance it’s own growth and expansion without incurring debt or giving up equity in the business.  It looks good on the balance sheet  because it is not a “loan” per se but a “sale” of a liquid asset of the business.

The asset-based lending industry is what I call a close cousin to the cash flow industry in that it is more often an actual loan with liquid assets as collateral.
 
WHAT IS THE MOST IMPORTANT PIECE OF ADVICE YOU WOULD LIKE TO GIVE OUR LISTENERS? 
 
Well, at the risk of sounding like I’m promoting myself –  but I think if your listeners agree about cash flow being such an important issue for small business owners – my most important piece of advice would be…..
 
If you have cash flow issues and your traditional funding sources haven’t  been able to help, check with a cash flow consultant — whether that be me or some other cash flow consultant. 

And, I don’t say a funding company that does the actual funding (for example, factoring of accounts receivable), but a “cash flow consultant”, in particular, because there are soooooo many different funding niches/sources in the cash flow industry that a business owner can get lost in it  as easily as in the traditional funding arena.  The cash flow industry  is very, very niche  oriented and that is where a cash flow consultant’s expertise comes into  play — to assess the business owners needs and direct them to the  appropriate funder and save them time and effort and let them do what they  do best…..run their business without worrying about cash flow issues!

So, whether it be me or some other cash flow professional, be sure to check out the funding tools in our industry to supplement the fulfillment of your funding and cash flow needs!
 

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Tags: cash, cash flow, factoring, funding, interest, small business

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With Purchase Order funding, there is a need for additional funding “before” you get to the invoice phase. I think of Factoring as the alternative financial tool of choice ONCE you have a completed service or product for which you are to the invoicing stage and Purchase Order funding as the tool of choice to help you get TO the invoicing stage.For instance, have you seen the Citi Bank commercials on TV lately?The one where the manager goes to the operations supervisor nervous and upset because they have just received a huge order for which they will need significantly more employees and materials to deliver?  The manager is upset because he doesn’t have a clue how they will have the needed resources to fill the order! Purchase Order funding would be happy to step in here as an off-balance sheet way of filling this order as opposed to more traditional debt models.Should a business hold back its sales efforts for fear of actually getting a larger order?Absolutely not!  Unfortunately, though, many business owners are unaware of the tools in this industry to help them leverage “Other People’s Money” to help self-finance their business growth and expansion.  The Citi commercial is a prime example.Fred Schmedt of The Samuel Noble Foundation says, “The use of other people’s money, called ‘leverage,’ is a tool that agricultural producers can and should use to harvest increased profits.”  The cash flow industry says not just agricultural producers should take advantage of this time-tested concept.Purchase Order funding is short-term funding used to finance the purchase or manufacture of specific goods that have been pre-sold by you to a creditworthy end customer. The cash advanced under PO funding is used to pay for the upfront materials and labor necessary to fulfill the order from a quality customer.  Once you produce, ship, and send an invoice for the goods - the funder will have a Factoring company buyout it’s interest.  The transaction then continues as a normal A/R factoring program. 
 
Contract funding is pretty much the same as PO funding but it is for a service as opposed to goods and there are many funders who specialize in this type funding as well.

Basically, though, they each (PO and/or contract funding) allow clients to accomplish the following:

• Secure payment to a 3rd party supplier for finished goods that will be shipped directly to the end customer
• Pay job-specific suppliers for raw materials
• Pay job-specific labor
• Pay for packaging, shipping costs, duties and inspections

Basic criteria for qualifying does rely on:

• applicant’s business strength and performance (contrary to factoring which looks at the account debtors strength); 
• applicant’s ability to satisfy the PO/contract; profit margins high enough to absorb the funding costs; 
• size of purchase order or contract; 
• number and quality of suppliers/contracts; 
• existing factoring relationship

Alternatives to Purchase Order funding (advancing cash to suppliers) may be the use of Letters of Credit or Payment Assurance Letters. The letters insure your vendors that they will be paid on time, and how they will be paid.  When vendor’s minds are at ease, they often eliminate pre-payment and C.O.D. requirements and extend payment terms.

The advance amounts and fees vary depending on each situation. Typically, every transaction will stand on its own, based on business history, credit worthiness, the ability of the supplier to provide the goods or services.

Until next post, be Safe!  And Geaux Tigers!  Debra

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Tags: contracts, funding, purchase orders

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