subject: Financing Your Business Without Investors [print this page] Finding business financing for a company has always been a challenge. to complicate matters, the current economic environment has made it a nearly impossible task to find investors. Nowadays, investors are looking for safe investments, and unfortunately, small and medium sized companies are not considered safe investments.
Although investor financing has many benefits, you should also consider alternatives that don't require that you give up ownership in the company. One common way to finance a company is to use a business loan. Although business loans are well known, they can be difficult to get because they have to go through a strict underwriting process. To qualify for a business loan, most companies need impeccable financial statements, solid assets and a few years of positive operating experience.
One alternative to business loans is factoring financing. This solution specifically helps companies with cash flow problems that arise from slow paying clients. It provides a cash advance against slow paying invoices, enabling your business to cover operating expenses. By reducing the number of days it takes you to get paid, invoice factoring can help free cash flow that can be deployed to new projects and growth opportunities.
One of the advantages of invoice factoring is that it is reasonably easy to obtain. Most factoring companies structure the transaction as a purchase, meaning they buy the invoice from you. Since they are buying the invoice, their biggest concern is the credit quality of your clients. This means that small companies or medium sized companies with a short track record but very solid clients can usually qualify.
Factoring companies buy invoices in two payments. The first payment covers about 80% of the face value of the invoice. Your company gets this very quickly. The second payment covers the remaining 20% of the invoice, less the factors fee. This payment is usually provided shortly after your client pays the invoice in full.
Invoice factoring is a flexible financing solution that can help small and medium sized companies that have cash flow problems.
