by Bryan F. Hatfield III
Yesterday I was able to attend an event connecting business owners to lending professionals in my area. Of course I was there to help these business owners get connected to capital. On the panel my company was featured for Asset Based Lending, there were two traditional bankers, one credit union, two alternative lenders and two business owners who had experience with KickStarter crowdfunding.
The event was a success but most people were focused on crowdfunding thinking it is the key to growing their business. In fact most companies that try to fund their business that way will fail because it is not a revolving source of working capital.
Working Capital is at the core of any business. It is essentially what drives the company and allows it to continue functioning. However, it can be very difficult to maintain a positive working capital while trying to expand or fund a new project or sometimes simply while covering daily operation costs. When capital issues come to light, there are a lot of options that businesses can take advantage of for financing.
Running a LOC or taking a loan can be very effective, but they also create debt that must be repaid. Unlike the Government, small businesses cannot keep running while racking up huge amounts of debt. If you are looking for a solution to capital needs that do not involve simply borrowing money, you might consider these options.
A very common practice for generating working capital in the economic world is accounts receivable factoring (or AR factoring). AR factoring is essentially selling your accounts receivable to a factoring company for a discount. The buyer, or “factor”, will then collect on the invoice at the time it normally would by changing the remit to address on the invoice to their lockbox account. This method has the advantage of receiving money immediately without having to pay it back. Even though the amount you get is slightly less than the account is worth, the time and resources that are saved are often valued higher than the loss. This is also a great way to separate operating capital from profits each month. In return giving you a much better understanding of profits that you have available to invest in your company. Beyond the capital benefits, one of the greatest benefits is not having to move money around frantically on payday.
Just remember that there are options out there for funding your business when the bank says no. Whether you are a startup or a company growing to quickly for them to keep up with you can find the funding you need.
Macto Business Alliance