Financing a business today is much different than before the 2008 credit crunch. Traditional lending sources are just not making business loans to young companies that may be struggling or those looking to grow.
We’ve heard it before, but it seems you only qualify for a business loan when you don’t actually need one.
So, where is the money going to come from that is needed to make payroll, grow your business, or simply to keep your business afloat? Your friends and family are out of the question as they are hanging on to every dollar right now, tucking it away under their mattress. Home equity values are down (yes, that’s an understatement). Even though banks have slightly eased up on credit standards and loan terms it hasn’t resulted in much benefit to small businesses. The banking world and commercial credit has changed forever. Old models of borrowing are no longer an option.
Banks are simply not providing loans to many of the companies that are keeping the US economy moving forward. Traditionally, banks would provide a line of credit that would allow a business to borrow up to 80% of the accounts receivable in good standing. This would give the business access to funds to maintain payroll, pay for supplies, and other operating expenses before payments from customers arrive. A great option is Accounts receivable factoring and it works very similarly to an A/R LOC, except it’s much easier to obtain approval for invoice factoring in today’s credit crisis.
The advantage of invoice factoring is that the asset represents an asset with cash value that the customer has committed to pay. By factoring, the borrower is not strapped with the debt and the stress of repayment if circumstances change.
As business financing has changed so much in the last couple years, business owners are doing more than thinking outside the box… they are thinking outside many boxes. Asset based financing in the form of factoring is one solution that offers flexibility and security.