Is your business cashflow clogged. Thinking of banks, venture capital? ... There is another way!

Historically, when businesses are in need of cash they have turned to traditional funding sources. The most common of which being a bank loan or line of credit. Many otherwise viable companies are, however, turned down by conventional lenders due to their limited credit history, lack of personal or corporate net worth, excessive outstanding debt or their assets being encumbered by liens. This is especially true in their first four years of business, which is, coincidentally, their time of greatest growth.

When these newer businesses must seek other financing, the next most common option is the search for venture capital. This may be as simple as taking on a silent partner, or locating an active partner through so-called ‘Angel Capital’ networks. In this case the owner is selling a piece of their business and their control in exchange for working capital.

Both the use of banks and of venture capitalists create debt and involve a decision process that is based on the companies credit-worthiness and can take anywhere from 60 to 180 days to secure funding, during which the owners’ focus may be taken away from their core business.

The good news is that the above-mentioned funding sources are not the only options. There is another way. Record numbers of fast growing companies are turning to funding sources offering alternative programs to solve critical cash flow problems, problems that can effect or prevent contract execution, business and/or facilities expansion, meeting payroll, taking advantage of cash discounts on purchases and even for acquisitions.

One example of such a program is the selling of a company’s interest in invoices to a private funding source at a discount, which is known as a factoring. Factoring’s roots are in the garment and textile industries, however, since the 1990s there has been a rapid growth in such factoring companies – resulting in increased price competition and making this form of increasing working capital efficiency available to small to medium sized businesses in nearly all industries that may not qualify for traditional loans or grants.

The most important aspect of this method of financing is that the credit criteria are based not on the company’s ability to pay but instead on the credit worthiness of their clients. Through the utilization of this method of financing these businesses can compete for large contracts and business that might otherwise have been beyond their reach.

Consider, for example, the case of a manufacturing company purchasing the raw materials for production on a just-in-time basis. Its sales department is rapidly increasing orders, the manufacturing division is cranking out the product and the freight handler is delivering the orders on time. If the customers, however, are not paying in a timely manner, this will result in a large portion, if not all, of the cash flow being tied up in receivables and therefore limiting growth.

In cases such as this, the businesses are turned down by traditional lenders due to their lack of lienable hard assets and they find themselves searching for the funds needed to continue their growth.

By using the services of a factor they can get what amounts to a continuously expanding line of credit, continue to take on and fill orders, and expand as planned. By combining their bank line of credit with this factoring line of credit, a business can be optimally positioned to take advantage of opportunities that present themselves in their marketplace and therefore accelerate their growth.

If you know a business that is experiencing clogged cash flow call me at 610-781-2392 or email prp@m7enterprises.biz because adding value is what we do.