Resources

This latest episode of Building Up Your Business with Erica Dill discusses the various funding options available for businesses. Kristy Melton even shares creative funding options for those companies who don't qualify for traditional funding.

Here are five ways your business can reduce or offset the cost of factoring and still improve cash flow: When a business is strapped for cash they often turn to factoring accounts receivable as a financing solution. Of course a factoring company expects to earn a profit on the cash advance and charges a fee for their service. Since the overall goal is improved cash flow, a company considering accounts receivable financing will carefully weigh the benefits against the costs.

Debtor in Possession (DIP). Financing for companies in Bankruptcy. Businesses in financial distress find they have very limited options for funding when they need it the most. A company’s abilities to obtain capital from their current lender will likely be cut off, and they may also fall into default on their loan covenants. For many distressed companies, there is hope for new financing. Through the bankruptcy courts, they can file for Chapter 11 for bankruptcy protection. This will allow them to take advantage of DIP financing to help them reverse course, restructure, and return to profitability. Note that DIP financing is not applicable for Chapter 7 bankruptcy where businesses are liquidated and walk away.

Medical A/R Factoring. We have looked before at the challenges of carrying slow pay- ing accounts receivable. Paying the discount fee to a credit card processing company seems like no big deal when you consider the alternative-waiting 30, 60 or 90 days to get paid if you don’t have deep pockets and you have payroll and lots of other bills to stacking up. Some reports estimate that more than 91% of businesses suffer from late payments. Accounts Receivable Financing (aka Factoring) is one-way business owners speed up payment on their invoices. It’s the oldest form of business funding-currently a billion-dollar industry.

Asset Based Lending. It’s almost inevitable that at some point your business will need some financing that exceeds what your existing bank lines of credit can accommodate. In most cases, this need would correspond with one of the periodic bursts of growth that most businesses experience. If your business is new or hasn’t shown steady profitability, it’s going to be very difficult to secure a small business loan since banks are notoriously conservative. I even had one banker tell me that if a business is growing more than 10-15% per year, that’s considered too aggressive for traditional bank financing.

Purchase Order Financing. What if you’re a small to medium-sized company and you’re awarded a large purchase order but have no access to working capital to complete the transaction? The solution you could be looking for is called Purchase Order (PO) Financing. PO financing enables good companies to complete their viable trade transactions. It’s most suitable for fast growing and relatively small, undercapitalized companies with large, seasonal or opportunistic orders. Like many other alternative financing programs, this solution serves as an alternative to equity.

Accepting Credit Cards to increase cash flow - new health order. We all know that to in order to legitimize your business, boost sales and be competitive, companies need to be able to accept credit card payments from their customers. Accepting credit cards can also help improve your business’ cash flow. Strong cash flow is more important now than ever. In most cases, credit card transactions are electronically processed and are likely to be settled quickly. Then the proceeds are immediately deposited in to your business bank account by the processor within a matter of days. This will not only increase and improve your cash flow but will discard issues revolving around checks, billing, and invoice collection from your customers.

In these changing times, we're adapting quickly to adjust to the new normal. For the past couple months, business owners have been focused on figuring out how to adjust or to survive this pandemic. Regarding funding, most have spent their time trying to access the disaster loans like the PPP, Paycheck Protection Program Loan, through their bank. But those loans only provide the funds to cover about 2.5 months of payroll. Besides that, some businesses could not qualify for those loans (i.e. foreign ownership) or could not secure a funding source. So, it’s important to know what other options are available.