Personal Finance Tips

Now the small business owner can get a line of credit with no hassle. Even in today’s economic climate with banks faltering and the stock market declining, smart banks and credit companies are still looking to invest in small business opportunities. Oftentimes, a line of credit can mean the difference between success and failure for a small business.

Lines of credit can be used to purchase inventory, pay utility bills, manage payroll, advertise, or to fund expansion projects. A line of credit can also allow a small business to weather downward trends in sales without having to make painful budget cuts and unpopular layoffs. A line of credit also allows a small business to avoid high interest loans from traditional banking institutions. Lines of credit are also much simpler to manage than typical loans or financial advancements, and securing a line of credit for your small business has never been easier.

While traditional banking institutions offer lines of credit for your small business, there are also other options. Conventional credit card companies are great resources a line of credit. They usually offer introductory low interest rates, flexible payment options, and are usually easier to secure than small business loans from a bank. The Internet is great tool to utilize when searching for an available line of credit for your small business. There are several web sites that offer searchable databases of credit offers. You can limit the search by any number of criteria, making each search specialized to your particular needs. These details can include credit limits, payment options, interest rates, and credit company options. Also, by applying online, many credit card companies offer different and better credit line terms for small businesses. These better terms can mean the difference between success and failure in a competitive business environment.

While credit card companies are a great and easy way to secure lines of credit for your small business, a bank can also be a good place to look for a line of credit. The terms may not be as good initially as a credit line issued from a credit card company (especially from an online application for credit), but banks a generally more trust worthy and the credit line terms are more predictable. When applying online for credit lines, there can be hidden terms or stipulations that are hidden in pages upon pages of small print. It is often difficult to realize all the terms and limitations of an online credit line. Interest rates are a good example. While introductory rates can seem excellent, once those introductory rates expire, the interest rate can skyrocket. This increased interest rate can cost your small business thousands of hard earned dollars, thus straining your business’ bottom line. Credit lines issued from banking institutions are more straightforward, and while their introductory interest rates are not generally as desirable as online credit institutions, the increased rate is generally much lower. When trying to secure a line of credit for your small business all aspects of the credit line are important. While credit lines can help your small business purchase inventory, pay employees, and weather downturns in sales, the wrong terms for your credit line can cost your small business thousands of dollars. 

As a small business owner, you will encounter the need for capital at various points in your business development. Understanding financial options available is a crucial business step to take, as the primary cause for small business failure is under capitalization. While you may not be having a cash crisis, you may simply be seeking the money to expand your business. If you are unable to turn to traditional financing, accounts receivable financing may be a sound option for you to consider.

What is Accounts Receivable Financing?

In its simplest terms, accounts receivable factoring is the selling of your outstanding receivables at a discount to a factoring company. Accounts receivable financing is also known as accounts receivable factoring or accounts receivable funding. In this transaction, the factoring company pays you a percentage of the accounts receivable up front, typically 75-80% of the total, with the remainder to be paid once the invoice has been paid. The factoring company will charge you a nominal fee for the transaction, but will handle the collections of your accounts receivables that you have sold to them. The fee that you will be charged will be based upon the factoring company that you select, the amount of the invoices that you sell and the duration of time that it takes for the invoice to be paid. Typically, the shorter the time it takes to have the invoice paid, the smaller the factoring fee. So, for companies that have clients who quickly pay their invoices, the fee could be as small as 1%.

The process of accounts receivable financing is quite simple. Your business will sell your accounts receivable, either all or a portion, to a factoring company in return for a discounted rate. The factoring company will generally wire you the funds the same day or the next day once they have received their proper paperwork, and then they will handle the collections of the invoices. Once the invoices have been paid, the remainder of the invoice, minus any applicable fees will be paid to your company directly. Most factoring companies will provide you with a consolidated monthly statement so that you can review the transactions and for your company’s record keeping.

Benefits of Accounts Receivable Financing

Pass off Collections: Outsourcing your accounts receivable management to another company can free up your previously dedicated accounts receivable resources to focus on other more productive activities such as selling. Once you sell your accounts receivables, the factoring company manages collection of the payment.

Free up Working Capital: Most small businesses have a need for additional working capital, yet have their assets tied up and are unable to qualify for additional financing. Accounts receivable factoring can provide your company with cash as quick as the same day for invoices submitted. This cash can then be used for your customary business expenses, to meet payroll or for business expansion needs.

Quick Financing: Accounts receivable factoring will not require a business plan, long applications, credit checks, tax statements or other financial information. Accounts receivable factoring is not considered to be a loan, so there is much less qualification work involved to establish a relationship with a factoring company. Also, the approval process can generally only take a few days instead of a few weeks when compared to traditional financing.

Assistance with Slow Paying Customers: One of the challenges that many small businesses face when trying to grow is that many of the larger customers that they are looking to partner with have slow paying accounts receivable policies. For example, many larger retailers have a standard payment policy of 90-120 days. If it requires a substantial amount of capital to fulfill their product orders, your small business could be placed in a cash crunch simply by accepting a great new, large retail customer. Accounts receivable factoring allows you to sell this invoice for a discount in order to capture the capital that you had to spend in order to fulfill the order.

Selecting Factoring: Many factoring companies will allow you to pick and choose which invoices you send to them to factor. This can mean a substantial cost savings to your business and will allow you to factor only the larger invoices, or the ones that you know in advance are going to be paid in the mid term, giving you the cash that you need and helping to justify the fees associated with factoring.

Once you are ready to consider factoring as an option for your accounts receivable, ask the following questions of the companies that you are interviewing:

* Is the money needed necessary for your company’s survival? Or, are you looking to take advantage of a business opportunity?

* How does this financing strategy match with your business plan? If you so not already have an established business plan in place, put one together prior to seeking factoring financing. Having a solid business plan will help you to make choices for your business that are in alignment with all of your business purposes and goals.

* Is your business in need of expansion capital? Have you explored other more traditional methods of financing?

* Have you reviewed the real cost of factoring your accounts receivable? For example, what percentage of your current repeating customers pay on time, how many pay late and do you traditionally have any issues with customers who don’t pay?

* Have you researched multiple factoring companies to determine their rates and services before selecting one?

Getting financing can often mean the difference between a company closing its doors and staying open.

While it can do more than just prevent bankruptcy, many business owners are not aware of the process or its benefits. Spend the necessary time to investigate the companies you are working with, inspect the contracts prior to signing, and work to negotiate discounted rates for your business.

The global financial crisis has made it quite difficult for companies, especially small businesses, to get business loans. Ironically, it is also in this situation that smaller companies often need additional capital infusion to boost income. You may need to get small business loans to acquire a better business location, construct a new building, renovate your premises, pay for new equipment, fixtures or furniture or increase inventory and working capital.

Most Small Business Loans Require Collateral

To get business loans, even small business loans, is a major challenge.

First you need to identify which among the many types of small business loans you need. Small business loans ranging from $5,000.00 to $35,000.00 are called micro loans. For larger needs, such as for the acquisition of land, buildings and other major fixed assets, development financing is what you should find. There are also import export loans as well as franchise financing. Do your research to find out if you are qualified for small business loans guaranteed by the U.S. Small Business Administration or SBA.

Any of these small business loans will require extensive preparations and paperwork. As a small business owner, you will need to prove your credit worthiness through a personal credit history report. Lenders will also require a business plan which includes your credentials as the business owner, your company financial statements, business assets and an analysis of your market. All of these should be packaged in a professional loan proposal which presents how the loaned amount will be used to strengthen the business and how you intend to repay the loan. Most of all, you need to present your loan collateral – the assets you will put up to secure the loan.  

Quick and Easy Small Business Loans with No Collateral

For smaller acquisitions or day to day business needs, there is a way for entrepreneurs to get small business loans easily and quickly with no collateral. This is through merchant services.

Merchant services provide credit card services to businesses. This enables them to accept and process payments through credit cards or debit cards either through face to face purchases, online transactions, or even by phone or fax. Merchant service providers supply terminal equipment for card swiping, as well as the necessary software and high speed IP solutions.

Most businesses need credit card services since consumers routinely pay for goods and services through credit cards and debit cards these days. If your business has not taken this step yet, you may have been missing out on more than half of your income potential.

These same merchant services also provide the solution for your small business loans. Collateral-free loans can be availed of through their cash advances, with the loan amount computation based on the monthly credit card revenue your business generates. Credit card sales requirements may be as low as $3,000.00 a month. You will not be asked for collateral since your future revenue is your collateral.  

The best types of merchant cash advances do not require fixed monthly payments nor do they impose deadlines on loan payment. A certain percentage is instead deducted automatically from your credit card revenue each month to go towards loan payment. This way, you never have to worry about loan amortization.

Once your cash advance has been fully paid, you may apply for another one. It is like having a revolving credit line. Make sure that you compare the terms of several merchant service providers, though, and read the fine print on contracts. There are so many merchant service providers competing for your business that you’ll surely find one that fits your needs.