Learn about two little known ways to finance your growing company.
New and growing businesses face a constant shortage of working capital. This shortage is more pervasive if you sell to other businesses or to the government. Why? Because other businesses and the government can take up to 60 days to pay their invoices. This means that you must find a way to pay employees, rent and suppliers while your wait for payment. More importantly, this cash flow shortage can also prevent you from drumming up new business, forcing you to slow down the growth of your business. When then need working capital, most business owners go to their local bank for a business loan. However, they usually find out that business financing can be very hard to get. Banks have a number of onerous demands that make loans nearly impossible to obtain. For starters, you must provide a business plan and show financials for the last couple of years. Banks also require that you have substantial assets or a guarantor. Although bank financing is very cost effective, getting it is quite hard. So, what options do small and mid size business owners have? Well, two options that have been gaining traction in the past couple of years are factoring financing and purchase order funding. They each work in different circumstances and both can help a business grow. Furthermore, both are relatively easy to obtain and can be set up in days. Invoice factoring is ideal for companies that sell products or services to business customers that take 30 to 60 days to pay. It provides you with an advance on your slow paying invoices, supplying the capital your business needs to pay employees and suppliers. By eliminating the payment wait, your business operates efficiently and is able to pursue larger opportunities. Purchase order financing works for companies that resell finished goods, such as wholesalers and importers. PO financing provides supplier payments, usually through a letter of credit, enabling the client to close the sale. The transaction is settled once the client pays for the goods. It’s an ideal solution for small companies that have been getting growing orders and are running out of working capital. Both factoring and purchase order finance are effective ways to finance a business. And, they are much easier to obtain than bank financing. The biggest requirement is that you do business with reputable clients who pay their invoices, albeit slowly. This makes it an ideal solution for small and growing firms whose biggest assets are good products/services and a strong roster of clients.
