subject: Funding Your Midsized Company In Turbulent Times [print this page] Most midsized companies have always been in a peculiar position when they seek financing. Often times they are too big to qualify for most small business financing packages, and too small to qualify with large financial institutions. Although many providers focus on "middle market" companies, finding the right financing can be a complex endeavor. This has become even more challenging in the current economic environment which strongly discourages institutions form risk taking.
Most midsized companies either need capital for new projects or need funding to smooth out cash flow. Their main focus tends to be on using lines of credit as a way to handle their cash flow problems. Unfortunately, the underwriting standards for a line of credit are similar to those of a conventional business loan. Most institutions require that the company have solid financial statements, good growth prospects and a well seasoned management team. And even if you meet these requirements, success is not guaranteed.
If your company has cash flow problems, there is an alternative source of funding your should consider. It's called factoring. It's an ideal solution if your business is affected by customers that pay their invoices in 30 to 90 day but you can't afford to wait. This problem is very common and it forces companies to dip into reserves (if you have them) while they way to get paid.
Invoice factoring provides a simple an elegant solution to this cash flow problem. It gives your company an advance on invoices from credit worthy customers, providing quick funds that can be used to pay expenses and pursue new opportunities. The transaction is settled once your customers pays for the invoice in full.
Most factoring transactions are structured with two payments. The first one covers about 80% of the invoice and is provided soon after invoicing. The second one is for the remaining 20% (less the factoring fees) and is provided after your clients pays the invoice. Factoring fees vary and are determined by the size of your invoices, your sales and the credit quality of your clients. In most cases qualifying for invoice factoring is a lot easier than qualifying for business loans.
One advantage of factoring is that it is tied to your sales - and it grows with your sales. This makes it an ideal solution for midsized companies that need flexible financing to grow.
