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Why Consider Small Business Factoring?

In Business, everyone has creditors and debtors. If you are a Small Business owner, your largest debtor is represented in your accounting books as accounts receivables. The total of your Accounts Receivables is the expected collections from your debtors.

You bill each customer for the amount they owe you and until they pay, each invoice is recorded as Accounts Receivables in your books. But even though this figure actually represents current assets to your company, they cannot be used to finance anything. That’s where Small Business Financing comes in.

There are many different terms used as synonyms for Small Business Factoring such as Invoice Discounting, Invoice Factoring and Accounts Receivable Factoring. With this type of Commercial Lending, a company would sell or offer as collateral their outstanding Invoices to a Commercial Funder who would advance them a percentage of the face value of the Invoices. The advance rate will vary from Commercial Funder to Commercial Funder, but an average will be 85% of the Invoice face value.

Once you enter into an agreement with a Small Business Factoring Company, the Factoring Lender will now take over the rights to collect the debt amount from your debtors. Thus your debtors would be informed to pay the Factoring Company directly on behalf of your company. This works out to be a win-win situation for you and the Factoring Company.

The advantages to Small Business Factoring are many, here are a few:

1. Cashflow Increased: With an available Cashflow, your company will be able to pay bills and meet payroll without having to worry about having sufficient funds.

2. Predictable source of funding for your business: You will not be forced to wait for 30 to 90 days to collect on your sales; you will have funding available to you within 48 hours of generating your invoices.

3. Reduced reporting: As you know, when you have a traditional Line of Credit with a bank, you will likely need to do monthly reporting to stay within the covenant set out by the bank. With Small Business Factoring, you will not need to do nearly the same reporting. In fact, much of the Accounts Receivable reporting is done from the Factoring companies systems.

4. Fewer rules than banks have: Banks are famous for their strings being attached to everything. Factoring Companies do not have as many rules and are more flexible for changing situations.

Now that you have seen some of the advantages of Small Business Factoring it is time to speak with your Commercial Finance Broker to see which programs fit your company the bestBest of all, most Commercial Finance Brokers are set up with the Small Business Factoring companies and they pay your broker, not you!

How to Acquire Funds for Your Startup Business: A Guide to Business Financing Options

One of the most difficult issues for any business, especially a small business or startup, is how to raise funds for projects. You may not be able to fund a business from your savings or friends’ help alone. To that end, many organizations, banks, venture capitalists and government organizations provide funds to businesses that have the potential to turn into something big.

This article discusses two of the most important sources of funds for startups — leases and loans.

Leasing:

Many small businesses and startups prefer to lease property and equipment rather than purchase it, since it is cheaper and less risky in case the business fails. Professional firms help startups hire or lease equipment and provide funds for the purpose. Many companies are dedicated to leasing for businesses in specific industries. Therefore, whether you have an IT business, agriculture or manufacturing business, there is a lease-purchase firm out there ready to finance your business.

Apart from providing leasing and mortgages, finance companies also provide startups with information on other sources of funds. In fact, with the advent of the Internet, you can access information on many different types of funding with the click of a mouse.

Startups may face some initial difficulty in getting a business lease since most leasing companies prefer to work with established businesses. However, there is no reason to lose hope. There are many companies, who specialize in financing startup enterprises. With a little patient research, you will be able to locate some lease-purchase companies willing to finance your business. Many companies even finance individuals working from home, so you will find finance options even if you work from your home office.

Loans:

You can opt for short-term or long-term loans depending on your business needs. If you wish to finance short-term projects, then short-term loans are ideal. For acquiring assets, however, or for business expansion, a long-term loan might be your best option.

The principal amount of a term loan is based either on the collateral of what is being purchased or on the profits the business anticipates earning during the duration of the term. The term period may be anywhere from 1 to 10 years. One of the major advantages of term loans is that the interest rate is fixed. In a market where interest rates are rising, this is a highly desirable factor for the small business. No matter what the financial situation of the company or the interest rate market, the company will pay the same rate of interest on the loan principal.

Before you sign with any financing institution for a loan, grant or investment, it is best to consult a business advisor who can tell you the pros and cons of each kind of loan. There are many flexible financing options available for startups today, and entrepreneurs need not give up on their dreams or ideas because of a shortage of funds.

Need a Small Business Loan?

Small business loans are available from a variety of sources. There are banks, savings and loans and lending companies in the private sector that make loans to small businesses. There are also some public entities that are involved in financing for small businesses. One such source is the Small Business Administration (SBA). The SBA is an independent federal agency that assists small businesses in various areas. One area of assistance is financial and as such it is a source of loan funds for small businesses. There are three different SBA loan programs geared toward different kinds of small businesses. Each functions in a different way but each provides a means of financial assistance for small businesses.

The first program is the SBA’s Business Loan program. SBA has various partners is the community known as Lenders, Community Development Organizations, and Microlending Organizations. The SBA defines the parameters for the loan program and guarantees the loans which are actually made by their community partners, the various lending institutions. The guarantee means that the federal government will repay all or part of the loan in the event of a default by the small business borrower. The small business owner should contact the SBA to learn the terms of this and other programs.

A second program involves the Small Business Investment Company (SBIC). These are public-private businesses that represent an investment partnership between the public and private sector. These business entities can borrow funds for venture capital financing through the federal government at low interest rates. The purpose of these investment companies is profit and to share in the success of the small businesses that they invest in and help grow.

The third component of the SBA’s small business financing program is called the Surety Bond Guarantee Program (SBG). This program provides financing by guaranteeing bonds for small contractors to bid on projects that they normally wouldn’t be able to bid on. The surety is the SBA’s guarantee to cover a portion of the loss if there is a breach of the contract.

These SBA programs help small businesses obtain funds that they might not otherwise obtain without the guarantee by the federal government. The government is assisting them by organizing lending sources and by assuming part or all of the risk of borrower fault. They are, in effect, shifting the risk of default from the lending institution to the federal government. These programs help small businesses grow and give them business opportunities they would not otherwise have had without the guarantee of the federal government.

Small business owners should contact the SBA to see what programs and funds are available. Funding is based on appropriations and may change from year to year.