The concept that alternatives readily available for small business owners fall to solutions between traditional financing, alternative financing , or venture capital is the wrong way to examine financing small business initiatives. Even though the business relies only on debt financing to fuel its capital requirements, business owners should take a look at the financing options accessible to them as a ‘portfolio’ of investment possibilities.
One size does not fit all– two or three sizes don’t fit all either.
Many of the Main Street businesses we mention here will sustain growth and fund working capital with borrowed money or cash flow. Fortunately, there are a bunch of options available. The sad thing is, many small business owners examine the options as an either/or choice to Factoring Company be made. I think it makes sense to consider financing choices that are appropriate to different circumstances and how they might work together to help small business owners find the capital they need.
As an example, a good relationship with a community banker is crucial to the long-term health of a small business. That’s not to say an SBA loan or some other traditional loan is the very best and only answer to the financing needs of the local dry cleaner or restaurant. Yes, interest rates are lower on a traditional fixed-term loan, but how fast a small business owner can get capital might be problematic with a term loan that takes weeks or months to fund if the small business owner wants the cash today.
And, the big hurdle is that many Main Street business owners don’t have the credit, time in business, or revenues to satisfy traditional loan criteria. This is particularly distressing for early or idea-phase startups. No history, no product, and no revenues generally mean no loan.
For a business owner who doesn’t match the underwriting guidelines of a traditional lender, factoring company products can serve to help establish credit while allowing the borrower to fill his or her short-term capital requirements. Invoice Factoring Companies have less stringent lending requirements than does the local bank– but that comes with higher interest rates. As a result of a lot higher interest rates, small business owners should consider repayment terms of a few months as opposed to a couple of years. Although alternative financing might be a powerful tool when used correctly, it can also be very costly if misused.
Many small business owners who do qualify for low-interest term loans still resort receivable factoring options as a short-term bridge to a traditional term loan while they await a traditional loan to be funded. If the business owner is attempting to take advantage of an opportunity and can’t expect an SBA or other traditional loan to close, the additional interest they pay over the two or three months they wait is well worth almost immediate accessibility to capital offered by factoring companies .
When checking out the various financing alternatives offered for small business owners, some of the questions that should be asked include:.
1. What is the range of terms available?
2. Are there any upfront costs?
3. What is the minimum credit score required to obtain the loan?
4. What are the underwriting needs along with my credit score?
5. Just how quickly can the loan be funded?
6. Will I need to have the cash now, or can I sit tight?
7. Will I have the ability to make regular and timely payments?
A small business owner should treat his or her credit score like a precious asset. Often short-term financial decisions have long-term outcomes. As an example; a business owner that had a good business idea but no collateral, no income, and no credit was frustrated and dismayed that lenders weren’t curious about his idea and weren’t falling all over themselves to grant him money. He wasn’t interested in bootstrapping because it would cause him to lessen his growth plans. It wasn’t what he would like to hear, but bootstrapping his idea was the only real choice available and the approach I suggested. Many exceptionally successful companies were started by an entrepreneur who bootstrapped his way to the top.
What’s the most effective strategy for your Main Street business? There are certainly more than just one or even a combo of many possibilities– once size does not fit all.