Small business owners are usually confronted with a number of challenges. One of them is getting business financing. Although most entrepreneurs start their businesses with their own funds, or those of friends and family, soon they reach a point where they need additional funding to grow the business.
One solution is to look for additional financing among your friends. This is a risky strategy since there is a risk of losing the friendship if you run into business problems. Another solution is to try to go to the bank for a business loan. However, to qualify for a bank loan, your company usually needs to show three years of profitable operations and appropriate collateral assets. Generally, this puts business loans out of the reach of most small business owners.
Two alternatives that are often overlooked by businesses are factoring and purchase order financing. Both offer great flexibility and are much easier to obtain than conventional business financing.
Invoice Factoring
Do have clients that pay their invoices in 30 to 60 days? If you need funds quickly in order to meet company expenses you should consider invoice factoring. With this type of financing, a factoring company can give your business an invoice advance, secured by your soon to be paid receivables. Although terms vary, most factoring companies advance about 80% of your outstanding invoices. The remaining 20%, less the financing fee, is advanced once the invoice is actually paid. One of the advantages of an accounts receivable factoring facility is that you can use it regularly to reduce the length of time it takes you to get paid on your invoices. Also, factoring financing is tied to your sales and increases as your company grows.
Purchase Order Financing
One common challenge for resellers (and wholesalers) is winning a purchase order that exceeds their financial capabilities. Purchase order financing can be used in these situations to bridge the financing gap, enabling the company to complete the order and book the sale. Basically, purchase order funding covers your supplier expenses. The transaction is settled once your customer receives the goods and pays for them. Purchase order factoring is only available to companies that resell goods, or companies that use third party manufacturing. Unfortunately, it most po finance companies cannot service direct manufacturers.
Conclusions
Factoring and purchase order financing have gained substantial traction as a financing solution for small and medium sized companies. They both have the advantage of being easy to obtain and setup. They can be an ideal solution for companies looking for pre-delivery and post-delivery financing of their commercial sales.
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Frequently Asked Questions
Loan Question
By: Busking2005 | 03-07-2008
I need to know, where can I get a small business start up loan even though I have bad credit at the moment?
Upside down on my car loan, Just moved to the US ...
By: rlatts | 19-05-2008
Upside down on my car loan, Just moved to the US and brought my Canadian car with me....can't refinance the loan in the US because my credit is non-exsistant (new to the credit world, in the US) Anyone have any ideas on how I might be able to get around this? Anyone gone through something similar?
I have no money for market research
By: Tom Hicks | 18-05-2008
I am trying to get a business loan for a start up company and i need to find statistics on how many canoes are sold annualy? I have 0 money for market research.
Follow up to an original question posted in Jan/2008.
By: hickory22 | 07-04-2008
It has been 3 months now and I found out the people whom we lent money to for their bussiness have full time jobs with different employers and never filed bankruptcy. We can not afford to hire an attorney at the present time. I have contacted them both by phone 3 times but they hang up on me. Now they say they will sue me for harrassment if I continue to call. Even though it was a business loan, and they're working elsewhere, they still can pay us something, right? These people have turned out to be very mean. I just want justice. Please advice if poss.Thanks!--------------------------------------------------------------------------------
Personal business loan
By: hickory22 | 16-01-2008
We loaned a person $75K for a business loan and he states he's going bankrupt now, which we will probably never see any of the money. At present, he hasn't filed, what can be done to get our money back? I don't want to contact him if I don't have to.
Business loans for credit-challenge
By: heryman | 19-09-2007
What companies and/or government corp that provide start up business loans to credit challenge single proprietors?
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