You have probably heard the old expression about trying to put a square peg in a round hole. In its most literal sense, this is the way traditional lending institutions try to treat small businesses when it comes to loan approvals.
To avoid the problems, time, and stress of going through traditional lenders, many small business owners try to address working capital shortfalls on their own. Understanding how these different options are not a good fit for a small business will help you decide if they are the options you want to consider.
We are also going to provide information on factoring receivables, which is a customized option to sell B2B accounts receivable to obtain working capital without a loan, any debt, and with no financial risk.
Personal or Business Credit Cards
For small business owners, one option may be to use a personal or business credit card to buy supplies or equipment, but this has its risks. Not only are credit cards high-interest funding sources; they also cant be used for payroll and large purchases since they are capped at a maximum credit limit.
In addition, with multiple owners, managing credit card limits and expenses can be challenging. At the end of the day, the balance on the credit cards will be reflected on your personal or business credit availability and standing as well.
Merchant Cash Advances
In some industries, it may be possible to use merchant cash advances for limited types of expenditures and purchases. This can be very expensive and result in significant increases in the costs of items purchased using this option.
Leasing
Leasing equipment is possible, but it is another monthly payment the business has to budget for in the future. In addition, leasing can be based on the same credit issues preventing you from obtaining a business loan from the bank.
Home Equity Lines of Credit
Accessing cash for a small business through a home equity line of credit is risky for a small business owner. In addition, it is also an application process through your bank and, with multiple partners or owners in a business, it can be very complex.
Factoring Receivables
Unlike the other options listed above, factoring receivables allows your small business to sell all or some of your B2B accounts receivables (AR) to us. As a factoring company, we then provide you with a percentage of the value of the AR and provide you with the working capital you require.
There is no loan or repayment, and when we complete collecting from the customers and subtract our pre-set fee, we will provide you with the outstanding balance owed.
Factoring is a tailor-made solution with a simple online application and approval. Typically we provide small businesses with the funding they need within three to five days, making factoring a good fit for small businesses with working capital needs.
