Small Business Funding Alternatives

funding option - Factoring?

What about —– A Receivables-Based Credit Line!

You already know that if you can get a line of credit at the bank, they will usually lien your businesses assets (furniture, etc.) as well as your accounts receivable.

In the cash flow industry, we offer a line of credit based solely on your accounts receivable!  If you happen to have a line of credit with your bank, too, but still need cash flow assistance, usually banks will work with us and release your receivables from their lienhold so that you can then leverage them further in the cash flow industry.

But basically — factoring is the conversion of a company’s commercial accounts receivable into immediate cash by selling those accounts at a discount. Factoring is not a loan. With factoring there is no interest to pay, nor principal to repay. No liability will appear on a company’s balance sheet due to its factoring. A Company simply sells one of its assets (accounts receivable) to obtain a more liquid asset (cash).

Since factoring is not a loan, funding is not based on the company which is factoring and its ability to repay the amount advanced. Rather, funding is based on the ability of the company’s customers (account debtor) to pay what is owed the company for the purchase of the company’s goods or services.

Factoring is, in essence, a Receivables-Based Credit Line, which needs no other collateral which is available to be drawn on when needed.   Contrary to bank lines of credit, facotring lines of credit grow as your receivables do!

 ADVANTAGES TO FACTORING:

Ø      Your Credit Line grows as your business grows

Ø      No restriction or control by the factoring company on the use of funds

Ø      No new debt is created

Ø      You are always in control of your CASH FLOW! 

In addition, factoring provides a company services other than just improved cash flow. By factoring, a company is in essence outsourcing all or a portion of its credit, collection, accounting, and monthly reporting. Factoring companies perform these services for hundreds of companies, and are experts at it. By supplying these services for their Clients, and giving their Clients the cash flow needed to grow, factoring Clients are free to do what they do best – run their business and increase sales. 

With over $60 billion of receivables being factored in the United States annually (and that figure is increasing rapidly), factoring is a quick and viable way for companies to finance their growth. 

 Fortune 500 companies such as IBM, Georgia-Pacific, and Shell Oil use this financial tool.  And now, it is available to small businesses (under $100 million/year) nationwide so that they, too, can take advantage of this proven, debt-free, and flexible method to effectively multiply working capital.

 Signs that a business could benefit from factoring include:

• LATE PAYROLL DEPOSITS
• IN BUSINESS FOR 3 YEARS OR LESS
• EXPERIENCING HEAVY GROWTH
• ALWAYS CHASING CUSTOMERS FOR PAYMENTS
• HEAVY SEASONAL SALES
• POOR RECORD OF INSURANCE PAYMENTS
• TAX PROBLEMS
• CONSISTENT HIGH BACK-LOG OF ORDERS
• LOSS OF SIGNIFICANT CUSTOMER

 WHAT ARE THE OVERALL ADVANTAGES TO  FACTORING? 

With factoring, you can have cash on demand to fund business growth internally, meet seasonal demands, and accommodate new and larger clients who may demand longer terms. 

IMMEDIATE ADVANTAGES:

• FAST & EASY!  Once a client has been set up, moeny can be wire-transferred to their bank account within 24-48 hours!
• NO FINANCIAL STATEMENTS needed in most instances.
• NO LONG-TERM CONTRACTS are required and you choose and pick which invoices to sell.
• Once an invoice is purchased, the factor assumes full responsibility for its collection (unless another option is chosen by you.).
• NO ADDITIONAL “DEBT” IS BEING ACQUIRED - AN ASSET IS BEING SOLD! 
• IMPROVES CASH FLOW to help grow your business which, in turn, makes your business more attractive to conventional financing - it helps establish your business!

DAILY ADVANTAGES: 

•  Custom-tailored program to fit your needs.
• Get cash for operating expenses - when needed - and when you can’t get it anywhere else!ØInterested in your Customers’ credit history - not yours
• Continuous source of Operating Cash
• Provides Credit Services (Screening & Monitoring, Early Detection of Customer Service Problems)
• Get instant credit reports on prospective customers and continuous monitoring of the credit status of all present customers
• Provides detailed Management Reports
• Faster Payments!
• No debt creation - no monthly payments or balloon
• No personal guarantees
• No geographical limitations
• Reduces internal administration so you can focus on growing your business - greater operating efficiency
• Reduces bad debt
• Avoids repayment of debt at inopportune time
• Avoids giving up equity or control, as in “traditional financing”
• Able to meet increasing sales demands
• Off-balance sheet financing
• Protects and improves credit rating
• Professional collections
• Greater Operating efficiency
• “Time Value of Money”
• Able to take advantage of volume, trade and other spur-of-the moment discounts by having cash available   

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The number one reason for business failure in the U.S. today is lack of working capital!

     Businesses need money to grow. A business cannot survive just because it has a better product, an exclusive market or the best method of distribution. The catalyst required for progress is money!

     But where does a business go when the banks say no?

 

Asset-Based Lending - What Is It and How Can It Help?

Asset-based lenders play a vital part in financing the economy and are dedicated to the growth and well-being of their clients. They provide their clients with cash by lending on fixed assets, accounts receivable and inventory, and engage in factoring, purchase order financing, real estate financing and leasing. They include the asset-based lending arms of domestic and foreign commercial banks, small and large independent finance companies, factoring organizations and financing subsidiaries of major industrial corporations.

The increased cash availability provided by asset-based lenders often makes the difference between profitable growth and failure for the undercapitalized business. The flexibility and cash flow availability they provide have enabled countless companies to grow and take advantage of market opportunities.

Asset-based lenders most often advance funds when traditional sources are not available. They are familiar with various types of businesses and are responsive to the individual client needs. Whereas, traditional sources, such as banks, usually have a one-size-fits-all attitude.

The phrases, “too small,” “too new,” and “not enough net worth,” do not deter asset-based funders. These lenders are “proactive” rather than “reactive” and can often help with creative structuring of deals to accomplish the goals and needs of their clients.

These lenders - large and small alike - possess the experience and know-how to structure the proper financing program for their borrowers and specialize in financing business transactions covering a broad range of products and services, both domestically and internationally. They understand the ins and outs of the specific industry they deal with. They have made a point of learning the industry and they have also made a point of thinking “outside the box” to accommodate the industry’s special needs.

Asset-based lending has always been available to “big business” but is just recently becoming utilized by small business. The business world has begun to realize that the total of “small business” is larger than “big business” and is beginning to work hard to make small business aware of these funding options.

Russell Handley, owner of Test Communications Group in Newburgh, NY installs cable lines for large cable companies. In his industry, it is standard for these firms to take as long as 90 days to pay bills. So Handley uses factoring (only one of the numerous types of asset-based lending - which is the sale of accounts receivable) on occasion and getting money quickly for his invoices allows him to take on more work. In fact, he credits factoring with having helped him increase his annual revenue from $500,000 seven years ago to nearly $4 million today. “We wouldn’t have grown as fast as we did without it,” he says.

(Pofeldt, Elaine. “Raising Capital.” Success May 1999.)

Phillip Brach, owner of World Trade Knitting Mills in Brooklyn, NY says, “When you call with a question, you don’t have to wait days and weeks for answers from the president and vice president,” he says. He also credits factoring with allowing him to increase his production and sale by about 25 percent in two years. (Pofeldt, Elaine. “Raising Capital.” Success May 1999.)

Some banks are actually beginning to send clients they reject to asset-based lenders. They have decided it is in their best interest to refer their business to someone who can help the client. Then, when the client grows to the point where he is bankable, they feel he will be inclined to stay with them and borrow from them.

The cost is influenced by the credit risk and collateral associated with the transaction. Again, no one-size-fits-all concept or mindset!

When evaluating an asset-based loan, borrowers should consider the cost of financing in the context of the benefits to be received rather than on the stand-alone basis. Compared with other financing alternatives, asset-based lending is very cost effective and efficient and is there “when” you need it to take advantage of profit opportunities in the market. Asset-based lenders are also responsive to the urgency of a businesses cash needs.

Some of the options available through asset-based lending are:

Accounts Receivable Factoring

Bankruptcy-Reorganization

Construction Funding

Credit Card Receipt Advances

Expansion Financing

Equipment Financing

Franchise Financing

Import and Export

Inventory Loans

Equipment Leasing

Purchase Order Financing

Real Estate Financing

Secured Credit Line

Unsecured Credit Line

Venture Capital

Royalty Funding

Debra Maples is a certified cash flow consultant who counsels companies and sometimes individuals on turning virtually every type of cash flow, income stream, debt instrument, or private paper asset into cash.

Debra’s specialties include:

• Solving cash flow problems with financing techniques banks don’t offer.

• Accounts Receivable factoring; Purchase Order and Contract Funding

• Business Note financing.

Debra is available to assist you with the structuring, purchase, or sale of real estate notes and any other negotiable paper instrument. She can be reached at (225) 247-4370. For additional information, see Debra’s website at www.yourcashflowconnection.com

 

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