Financing your Small Business in a Tough Environment

Finding small business financing in the current environment is very difficult. Lending institutions are being very cautious and are only providing business loans to companies that have impeccable financial statements, a long history of growth and substantial assets. Because of this, few small companies can get a business loan or other forms of conventional financing.

Fortunately, not all financial problems need to be solved with a business loan. Many cash flow problems, common to small business, can be solved using invoice factoring.

Most small companies run into cash flow problems because they don't have an adequate reserve of capital to handle unexpected growth or costs. This situation is worsened by the fact that small companies usually have to give clients 45 to 90 days to pay invoices. This leaves the small company with the hard costs of delivering their product or service while having to wait for payment.

Asking clients to pay their invoices sooner will not work. Most clients, especially large corporations, require 45 to 60 day payment terms. Most will have these payment requirements in their contracts and won't show flexibility. And unfortunately, if you don't provide them with payment terms, someone else will.

This is where invoice factoring comes to play. You can get an advance on your invoices using a financial intermediary, called a factoring company. This provides you with the liquidity you need to operate your business. The factoring company holds the unpaid invoice until maturity and then settles the transaction with you when the client pays.

One of the biggest advantages of invoice factoring is that it enables you to leverage your invoices. Factoring companies look at the credit worthiness of the companies paying the invoices as an important components in their funding decision. This means that a small company whose biggest assets is a client list of large credit worthy companies can usually qualify for this form of financing.