Business Financing For Companies that Cannot Get a Business Loan

Although the recession officially ended a few years ago, the economy is still reeling from the economic after-shocks of the credit bubble. One of the most difficult challenges that small business owners are facing is the lack of conventional business financing options - namely business loans and lines of credit. Most lending institutions have substantial financial problems and are unable (or unwilling) to extend loans to small businesses, unless they have substantial collateral.

Businesses owners, on the other hand, have their own problems because cash flow is tight. Customers that used to pay in 15 or 30 days are now taking up to 60 days to pays their invoices. However, small businesses still have to pay employees and vendors on a timely basis. This creates problems, forcing managers to juggle payments between vendors. To complicate matters, many small businesses are turning away new orders simply because they are unsure if their cash flow will allow them to service the client properly. This create a vicious cycle that puts business owners in a catch 22.

There is one way to break this vicious cycle, and that is to use business financing to strengthen the company's cash flow, enabling the business to take on new orders and grow. And since few institutions are offering financing, the only option is to use alternative financing. One product that has been gaining traction in the past few years is invoice factoring.

Invoice factoring is designed to solve cash flow problems that are created by slow paying customers. It accelerates the receipt of cash, providing the liquidity you need to cover current business expenses and grow the business. By eliminating the conventional net 60 day wait for payment, your company is able to make business decisions based on the potential of a customer, rather than their payment habits.

Factoring works by using a financial intermediary between your company and your customer. The intermediary, called a factoring company, buys your invoices and pays for them by advancing funds to your company. This provides your company with the needed liquidity to operate and grow. The transaction is then settled once your customer pays the invoice in full, usually 30 to 60 days later.

As opposed to other forms of financing, accounts receivable factoring is widely available and relatively easy to obtain. This two biggest requirements are to work with credit worthy customers and to be free of major problems, like liens and judgments. Customer credit worthiness is particularly important because the whole premise of factoring involves leveraging your customers commercial credit to your own advantage. This makes invoice factoring an ideal solution for small and midsized companies whose biggest challenge is that they can't afford to wait 60 days for their customers to pay.