Business Financing Options For Small Businesses
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Written by admin on September 29, 2008 – 11:51 pm
Small business owners are usually confronted with a number of challenges. One of them is getting business financing.
Although most entrepreneurs start their businesses with their own funds, or those of friends and family, soon they reach a point where they need additional funding to grow the business.
One solution is to look for Small Business Financing among your friends. This is a risky strategy since there is a risk of losing the friendship if you run into business problems.
Another solution is to try to go to the bank for a business loan. However, to qualify for a bank loan, your company usually needs to show three years of profitable operations and appropriate collateral assets. Generally, this puts business loans out of the reach of most small business owners.
Two alternatives that are often overlooked by businesses are factoring and purchase order financing. Both offer great flexibility and are much easier to obtain than conventional business financing.
Invoice Factoring
Do have clients that pay their invoices in 30 to 60 days? If you need funds quickly in order to meet company expenses you should consider invoice factoring. With this type of financing, a factoring company can give your business an invoice advance, secured by your soon to be paid receivables. Although terms vary, most factoring companies advance about 80% of your outstanding invoices.
Purchase Order Financing
One common challenge for resellers (and wholesalers) is winning a purchase order that exceeds their financial capabilities. Purchase order financing can be used in these situations to bridge the financing gap, enabling the company to complete the order and book the sale. Basically, purchase order funding covers your supplier expenses. The transaction is settled once your customer receives the goods and pays for them
Conclusions
Factoring and purchase order financing have gained substantial traction as a financing solution for small and medium sized companies. They both have the advantage of being easy to obtain and setup. They can be an ideal solution for companies looking for pre-delivery and post-delivery financing of their commercial sales.
