Securing Capital for Your Business

By Charles Wright, MBA

While many businesses struggle to maintain during a recession, it is also a time when many new businesses are started. Whether a startup or an existing business, finding capital — especially in today’s economic environment — is often times a very difficult and sometimes disappointing venture. The purpose of this column is to discuss the various options of securing capital by answering questions submitted by readers surrounding the world of business finance.

Q. As a small business owner, what options are available to secure capital? It seems that the banks aren’t really lending money right now.

Despite sitting on tons of cash, banking institutions have continued to tighten their lending belt. According to a recent report by the FDIC, outstanding loans to small businesses totaled $609 billion at the end of March, an 8.9 percent drop from a year earlier. A weakened economy filled with uncertainty, along with questionable asset quality and increased reserve requirements, are forcing financial institutions to hold on to their cash despite record low interest rates.

So what is an entrepreneur to do?

There are several options available for businesses at all stages, from Start-Up to 2nd Stage companies and beyond:

Unsecured Line of Credit: This program requires a top notch credit profile. Credit scores < 700, utilization < 50% (outstanding balances vs. credit limits), minimal inquiries, and no delinquencies or collections. Funds can be used for any purpose, and in most cases the line does not report to the credit bureau.

Account Receivables Financing (or Factoring): This type of financing allows a company to leverage their Account Receivables by selling them at a discount to a 3rd party known as a “Factor”, in exchange for immediate cash.Depending on the size of the receivables, a company can either secure a credit line, or sell each invoice on an invoice by invoice basis. In this method of financing, the emphasis is on the value of the receivables and not the creditworthiness of the company.

Purchase order and Contract Financing: Whether you are a start-up or a seasoned business, if you have a PO or Contract to deliver and/or perform a service or product, you can leverage these contracts to allow you to fulfill the order. PO and contract finance is short term transaction- based financing that allows companies to purchase or manufacture goods that have been pre-sold. Funding amounts typically include up to 100% of the cost of goods sold, with an emphasis on the company’s ability to perform and the creditworthiness of the client’s end customers.

Merchant Cash Advance: This type of financing is perfect for businesses that accept Visa and Mastercard. A line of credit is issued based on the average monthly Visa and Mastercard receipts. As this type of financing is not a loan, there are no fixed payments and the cash received is not reported to any credit agencies. The amount accessed is paid back by the lender holding back a small percentage of the businesses daily credit card receipts.

There are lenders out there ready and willing to help fund your business – sometimes it takes a little creativity to figure out what assets are available to leverage and monetize. So if your creditworthy, carry an Accounts Receivables balance, have a Purchase Order or Contract (including Government), or your business accepts Visa and/or Mastercard the answer to your cash flow problems are only a phone call away.


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