Article Contributed by Gary Barzel
As stagnant or declining sales and the increasing costs on everything from commodities to healthcare have whittled away the profit margins of numerous small business owners, getting adequate financing to cover day-to-day operations has become more difficult. Banks and other commercial lenders in particular have been rather tightfisted these days with businesses that have taken a hit to their revenues and credit profile.
If your business has been struggling lately to come up with a sufficient cash flow, and your bank has not been so eager to help, you may want to consider one of the four following financing alternatives:
Accounts receivables factoring and financing.
Accounts receivables (AR) factoring and financing involve leveraging outstanding customer invoices in exchange for instant cash. With AR factoring, a business typically receives 70-90% of the total value of the receivable, the rate being dependent on the age of the account. The factor company then assumes responsibility for collecting the outstanding invoice. Upon full receipt of the payment from the customer, the factor company will return the remaining balance, minus a small processing fee. With AR financing, the business uses the invoices as collateral for financing, yet is still responsible for collecting payment from customers.
Merchant cash advance.
With a merchant or business cash advance, companies can leverage their future revenues to receive instant capital. In this case, the financing company purchases a portion of the business’ future revenues at a discount (the rate of which is generally based on the business’ sales history). The business then receives an instant lump sum of capital, while the financing company collects a fixed daily percentage of the business’ sales until the full agreed upon amount is paid off. Some cash advance companies will only work with credit card revenues, others offer financing on all future sales.
Peer-to-Peer (P2P) lending.
If your personal or business credit rating is 600 or higher, then you might want to consider a short-term microloan from a peer-to-peer lending platform, such as Lending Club or Prosper.com. With P2P lending, business owners submit a request for funding to the site including a short description of what the money will be used for as well as some of their current financial information. Individual investors then contribute small amounts of money until the desired loan amount has been reached.
Renting out your property or assets.
One final way to generate capital for your business is to rent out (or sublease if the property owner allows) any unused real estate or equipment. The rental is usually a short-term agreement that can last for a year, a few months, and even on a day-to-day basis. You should just make sure that you have a clear rental agreement in place and that renting out your business’ equipment or property is realistically doable.
In short, if you are looking for working capital for your business, your search does not have to begin and end with the bank.
About the Author
Gary Barzel is the manager of business development for Fastupfront. Fastupfront offers a working capital solution for merchants in need of business loan financing without the hassles associated with traditional bank loans.