Securing Business Finance to Weather the Financial Storm

Business finance has never been in the news more than it is now and justifiably so.

The lack of liquidity is having a stifling effect on businesses looking to restructure finances to provide liquidity in today's market, and it could have a knock on effect in many ways. An incredible £76bn of commercial property loans require refinancing before the end of 2010.(1) If they are unable to achieve this, businesses and property will come under a double dip pressure.

There are concerns of banks having significant category hits. Not surprisingly they are now finding out that they did not know what they had invested into. This is causing them considerable uncertainty in terms of their own balance sheets and exactly what they are exposed to. Naturally they will be very concerned about what they will now invest into.

I am not in the habit of catching falling knives, and this market is falling, and it's only with clarity of what is really out there that banks will feel the ground under their feet. If that's the case caution will be key, tight lending during 2009 and into 2010 whilst batteries are recharged and on to a loosening of capital later in 2010.

With uncertainty it's difficult to see any other alternatives.

In the meantime however, we are seeing reasonable lending policies with banks for appropriate projects, but much depends on how well they are approached. A mish mash plan isn't going to encourage a manager to take too much time on studying the feasibility of extra lending, but a well thought through project would.

Consider that many banks are still saying they have liquidity and plenty of it. They are paying little or nothing to savers who have deposited with them, but borrowers in some sectors are being charged as much as 6% over base, even when they have an excellent company or project.

Banks are currently concerned about certain sectors such as development finance, retail and pubs. If you are applying from within this sector, you need to look very closely at how you present yourself.

Outside of that there are numerous opportunities and banks are more than willing to lend. As I said its not a case of landing in with your A4 'dream sheet', more a case of a well thought through plan that makes sense. The manager will then invest his time and energy to deal with it. After all with profits to be made with base rate at 0.5% they want to get the money out there.

Another key is to look at using the other forms of finance available. In the last few weeks alone I have seen many directors with residential mortgages and directors loan accounts who could easily restructure and receive tax relief on their residential mortgages.

I have also seen businesses with cashflow issues who have large clumpy poorly managed pension funds performing backwards at best.

At the same time they have a business property that they own and cannot raise finance on it to inject into the business. If they used their pension to buy the property, they would release all the cash in the property and also the rent they would now pay would be going into their pension.

There are also a number of government funded finance objectives but once again you need to fully understand exactly where to go with that as that's a language in itself.

As I said to public sector friend of mine recently, wouldn't it be great if Google invented a 'google translate' page to translate from 'public sector speak' to private so we all knew each other. He said 'vice versa'!

Approach this sector correctly and you will find there are a range of options available to you. It may be hard work making your way round, but markets like this are hard, and like in a storm the strong trees survive only to enjoy much more light in the future years.

Source(1) investor's chronicle

Business Financing Options For Small Companies

Small business owners are usually confronted with a number of challenges. One of them is getting business financing. Although most entrepreneurs start their businesses with their own funds, or those of friends and family, soon they reach a point where they need additional funding to grow the business.

One solution is to look for additional financing among your friends. This is a risky strategy since there is a risk of losing the friendship if you run into business problems. Another solution is to try to go to the bank for a business loan. However, to qualify for a bank loan, your company usually needs to show three years of profitable operations and appropriate collateral assets. Generally, this puts business loans out of the reach of most small business owners.

Two alternatives that are often overlooked by businesses are factoring and purchase order financing. Both offer great flexibility and are much easier to obtain than conventional business financing.

Invoice Factoring

Do have clients that pay their invoices in 30 to 60 days? If you need funds quickly in order to meet company expenses you should consider invoice factoring. With this type of financing, a factoring company can give your business an invoice advance, secured by your soon to be paid receivables. Although terms vary, most factoring companies advance about 80% of your outstanding invoices. The remaining 20%, less the financing fee, is advanced once the invoice is actually paid. One of the advantages of an accounts receivable factoring facility is that you can use it regularly to reduce the length of time it takes you to get paid on your invoices. Also, factoring financing is tied to your sales and increases as your company grows.

Purchase Order Financing

One common challenge for resellers (and wholesalers) is winning a purchase order that exceeds their financial capabilities. Purchase order financing can be used in these situations to bridge the financing gap, enabling the company to complete the order and book the sale. Basically, purchase order funding covers your supplier expenses. The transaction is settled once your customer receives the goods and pays for them. Purchase order factoring is only available to companies that resell goods, or companies that use third party manufacturing. Unfortunately, it most po finance companies cannot service direct manufacturers.

Conclusions

Factoring and purchase order financing have gained substantial traction as a financing solution for small and medium sized companies. They both have the advantage of being easy to obtain and setup. They can be an ideal solution for companies looking for pre-delivery and post-delivery financing of their commercial sales.

Small Business Finance - Unorthodox Options

Working through the rigorous chain of processes, trying to secure a license or permit to start a business or trade can be difficult enough, now add to that the great worry for most; how do I raise the capital? For long this question has been recurring, experts in the field of business finance have turned out series of books and articles on the best ways of raising the necessary funding, but if one looks closer, you will discover that as the capitalist society is class ridden, so does it affect the rules as they relate to business finance.

I would want to draw attention to the funding options available to the poor, or putting it more correctly; the financially challenged. From my observation, it is clear to me that on average, the poor pay more for services than the well off in the same city. If you think this to be farfetched, then consider how much a family occupying a one room shack pay to buy water from a selling point on a daily basis as their deprived neighborhood is not connected to the mains, in contrast to what another family living in a wealthier suburb pays for a similar liter of water.

Over here in Nigeria, it is common to hear people patronizing finance houses and money lenders who charge as high as 10% to 15% interest rate per month. I believe you are wondering aloud "that's Outrageous", but to those securing such loans, they feel they are being done a favor. The fact is having a low or non existing collateral base, limits the option of being able to secure loans from the banks. They then look for funding anywhere they can find. This restricts their business prospect to acquiring stocks and getting rid of them (selling) as many times as possible before the debt matures. Such businesses have a relatively small non-current asset, also, long term planning and expansion is difficult.

Now with all said, there are some ingenious methods that are being taken advantage of. I will like to put forward a contributory scheme I thought of, it involves shop owners and trades men committed to making regular weekly contributions to a pool of fund, on attaining a minimum of twenty weeks of contribution, a member can apply for a loan that is double the total contribution made so far. It all adds up as half the members are active while the other half are not at any point in time. Now the cooperative must be formally structured with it accounts in line with best accounting standards, furthermore, its books must be subject to periodic audit. On the basis of this, I propose that the cooperative can then serve as a guarantor for further loan not exceeding the value secured from the cooperative. This is based on the financial requirement of a members' business need.

With the role of the cooperative standing as a guarantor of further loans from the banks come more challenges. What if the member defaults? This creates the need for the cooperative to do the necessary background check on members' credibility and also make sure only those with a track record of paying back their loans on time qualify for bank loan guarantee.

Taking a critical look at the entire deal, one will observe that members of such cooperative on average will be getting access to loans at below the bank interest rate. This will afford them the opportunity of having the financial flexibility to expand and entrench into the business assets that would generate better efficiency.

Small Business Finance

Every organization regardless of its size and mission may be viewed as a financial entity. Management of an organization, particularly a business firm, is confronted with issues and decisions that have important financial implications. Questions must be answered like:

o What kind of plant and machinery should the firm buy?

o How should the firm raise finances?

o How much should the firm invest in inventories?

o What should the firm's credit policy be?

o How should the firm gauge and monitor its financial performance?

Business finance is broadly concerned with the acquisition and use of funds by a business firm. Its scope may be defined in terms of the following questions: How large should the firm be and how fast should it grow? What should be the composition of the firm's assets? What should be the mix of the firm's financing? How should the firm analyze, plan and control its financial affairs?

In general, business finance rests on the premise that the objective of the firm should be to maximize the value of firm to its equity shareholders. What is the justification for this objective? It appears to provide a rational guide for business decision-making and promote efficient allocation of resources in the economic system. Savings are allocated primarily on the basis of expected return and risk and the market value of a firm's equity stock reflects the risk-return trade-off of investors in the market place.

Hence when a firm maximizes the market value of its equity stock, it ensures that its decisions are consistent with the risk-return preferences of investors. This suggests that it allocates resources optimally. If a firm does not pursue the goal of shareholder wealth maximization, it implies that its actions result in sub-optimal allocation of resources. This in turn leads to inadequate capital formation and lower rate of economic growth.

Business Financing And Commercial Loans For All

Business needs funds for its smooth functioning. Funds carry same importance as blood in our veins. In other words, it is really difficult to imagine a business without funds. Usually, financial market has number of sources that provide finance for business. But, the best source among them is business financing and commercial loans.

Business Financing and Commercial Loans can be availed through banks, financial institutions or from various building societies. Due to this neck throat competition, the borrower can get competitively low cost for Business Financing and Commercial Loans.

Business Financing and Commercial Loans can be used in following ways:

o To start a new business or,

o Investing in existing business or,

o Buying machinery and equipments for business or,

o Consolidating business debts etc.

Business Financing and Commercial Loans can be availed in two ways that is by placing collateral and without placing collateral. Both are good in their own way. So, the borrower can choose any of the way as per his financial position and convenience.

Interest rates in business financing and commercial loans vary from borrower to borrower. The lender determines the rate of interest by considering certain factors. Some of the factors are as follows:

o Rates prevailing in the market

o Flow of business

o Type of business

o Amount being borrowed

o Credit worthiness

o financial status

The borrower is recommended to apply for business financing and commercial loans through online mode. Online mode simplifies the task as it is just a matter of minutes to locate, compare and apply to the lender.

Following are some of the points which the borrower is suggested to consider:

o He must try to deal with an authorized and well known lender.

o Timely repayments of loan must be made.

o An amount must be procured by considering the repaying ability.

o Comparison and research is recommended as it helps in getting the best loan deal.

Business Finance Consulting and Planning Tools

Various strategies for cost control will be helpful for most small businesses trying to cope with reduced sales volume. Business planning and consulting are likely to be among the most effective alternatives to help small business owners deal with recent distressed financial conditions.

The need for new business planning tools is rarely a high priority for a company that is not experiencing one or more substantial problems. However even for the most healthy business, contingency plans are advisable. The value of contingency planning for business financing is sharply illustrated by recent examples of banks suddenly eliminating commercial loan programs with little or no advance notice. The level of chaos that currently prevails throughout commercial banking unfortunately means that changes can continue to occur with little warning.

Business consulting will often not be thoroughly considered by small businesses because of the potential cost. As with any any other corporate service, costs cannot be ignored. This is particularly true in the current economic environment because very few businesses have substantial discretionary funds to cover new business expenses. Nevertheless it will sometimes be necessary to spend some money in order to either make money or reduce costs.

The growing need for business consulting and management tools is supported by the disturbing number of changes which have occurred throughout the business world recently. To adequately address many of the complicated changes impacting small business loans and working capital financing, most business owners will not have enough technical skills or information. Many banks have imposed significant fee increases for their commercial finance services, and finding effective (and less costly) alternative business funding services will prove difficult for even the most skilled borrower. While there are some viable business finance options to replace traditional bank financing, these alternatives can seem confusing simply because they are new and different approaches.

Whenever there are complex problems, there are rarely simple solutions. The current difficulties for small business owners are a growing challenge. Similar circumstances have not been seen during the past fifty or more years for most businesses. As a result, even a highly experienced business owner is likely to be missing enough direct experience to make it through the maze of current changes and problems without at least some outside help.

It is likely that the most effective (and realistic) business planning tools will actually be a combination of several approaches undertaken with a coordinated effort. As noted above, complicated problems will usually require complex solutions. This will often translate to a series of business management and planning maneuvers that can take a number of months or even several years to complete. Small business owners should generally avoid any business consulting expert that portrays the problem-solving process as quick and easy.

Debt-Free Business Financing With No Loss of Ownership Or Control

There is a form of business financing that is debt-free, with no loss of ownership or control.  It is very quick and still readily available.  It is the only form of finance that grows as fast as invoices.  There is no minimum time in business or collateral requirement.  The client's personal or company credit is usually not important.  Prior liens are usually not a problem, so long as they're disclosed up front.  (Factors don't like surprises.  A deal that could have worked will probably die if the factor's due diligence turns up undisclosed liens.)

This form of finance is called factoring.  Say your company (the client) provides a product or service to a customer, then issues an invoice for those goods or services.  The customer frequently takes 30-90 days to pay the invoice.  Rather than wait, the client can sell the invoice to a third party, called a factor.  The factor will verify that the invoice is valid and that the customer has the willingness and the ability to pay.

The factor will pay for the invoice in two parts.  Initially, he will pay the client an advance of typically 70-80% of the face value of the invoice.  This usually takes less than 48 hours.  When the customer pays, the factor will deduct a fee, and refund the balance to the client.  This fee is mostly affected by the time the invoice is outstanding.

There are numerous advantages to factoring for a client company.  The most obvious one is that cash flow improves immediately.   Factors also provide other benefits as part of their normal business, such as handling collections and tracking accounts receivable.  A factor can provide quality assurance when they verify that the customer received the product.  Another benefit is that a factor will verify a customers' credit before advancing funds.  If you're looking to do business with a new customer, but the factor won't fund their invoices, you will want to be very careful about the terms you offer them.

Factoring rates tend to be higher than bank rates, but when considering costs it's important to consider the benefits as well.  Having cash on hand to bid more work or take advantage of supplier discounts can make a huge difference.  The objective is to make more money by factoring than you would if you didn't factor.

Factoring has changed a great deal over the last ten years.  There are 5-10 times as many funding sources now as there were then, so rates and terms are much more competitive.  There are factors for invoice volumes of $500/month to over $10 million/month.  There are factors of all sizes who specialize in the construction and medical industries.

Because there are so many funding sources, your best bet is to use an independent broker.  Most brokers don't charge any client fees.  They are paid referral fees by the funding sources because the funding sources are wonderful people (many of them are very nice, actually)  and because it's less expensive for them than advertising.  There is very little difference in referral fee rates between different funding sources, so finding the best match between the needs of the client and the funding source is the primary concern.

The Worst Small Business Financing Strategy Ever?

Depending on whose stats you pay attention to, approximately 80% of small businesses fail within their first 5 years of operation.

In many cases, its not that a particular business could not succeed; there just wasn't sufficient time to figure out how to succeed.

Which brings us to the worst small business financing strategy ever.

Here's how it work.

The would be entrepreneur develops what they believe to be a sure fire business plan that can't fail.

Unable to locate any form of start up capital, they start their business with credit cards as the only source of financing, and an expectation of sustainable business results within 3 to 6 months.

If everything goes well, the debt will be retired within a year and funds will start building in the bank account.

Sounds Good, right?

I mean the thinking lines up perfectly with all the get rich quick business opportunities that exist on and off the internet today where some of them even try to convince you to use your credit cards because the opportunity is soooooooo good and can't miss.

The problem is that every business can miss.

Every single one.

And the vast majority do fail.

Have you ever spoken to someone who runs a successful small business; perhaps one that's been around for 10 to 20 years?

If you take the time to ask one of these entrepreneurs about their start up period, what you learn may shock you.

Even some of the most successful small and medium sized businesses out there today had some hairy moments making a go of it in the early years.

And some times the difficult early years lasted for several years.

The point here is simply this.

The process of getting a business operating and successful can take many unexpected twists and turns, no matter how diligent you are in creating a thorough business plan and business financing strategy.

Therefore, to increase your probability for success you need to allow for the unknown, the unplanned, and the unfair.

A business financing strategy that cannot accommodate unforeseen events is not much of a strategy.

A business financing strategy that is based on high interest credit cards that can destroy both your cash flow and your personal credit is also not much of a strategy.

To improve your odds of small business success, here are some tips for developing a solid business financing strategy.

Invest Your Own Cash

If you have some of your own cash penciled into your business financing strategy, it will immediately increase your likelihood of getting some sort of start up loan.

The more "skin" you have in the game, the more interested a lender will be in approving your loan request.

There is also something to be said about the psychological incentive of losing your own money and the motivation it creates for you to work harder to keep it.

Create Contingencies in Your Cash Flow

Whatever you estimate your working capital requirement to be, double it. At least increase it by a factor larger than 1.

Things can and will go wrong, so give yourself a fighting chance and develop a business financing strategy that allows for less than perfect results.

Use Credit Cards Wisely

Used properly, credit cards can be the cheapest form of working capital that you have at your disposal.

Some business credit cards provide 40 days of interest free financing. If you pay off the entire balance every month, you have an extremely low cost of working capital financing.

But if you start carrying large balances without paying them down monthly, you will go from the cheapest source of working capital to one of the most expensive, and you will likely also destroy your credit rating in the process.

Make Timely Government Remittances

Small businesses are by default tax collectors. And the taxes collected can sometimes wind up funding the business for longer periods of time than they were ever intended.

Using government remittances as a business financing strategy is basically a bad idea.

Government agencies that are assigned to collect from you have large budgets and enough broad sweeping authority to create plenty of grief for you if you are too slow in paying.

If you apply for a business loan while you have an overdue balance with a government tax agency, your loan request will likely be declined.

Even after the balance is paid up, you may have burned your bridge with the lender as a history of overdue government remittances can brand you as a bad credit risk.

Watch Spending Closely At Startup

One of the things you can control early on is how much you spend and what you spend it on.

This is going to change in time, but if you can spend wisely in the beginning you may be able to avoid a cost cutting exercise further down the line.

While its normally true that you have to spend money to make money, you can still be smart about the spending process.

Start-Up Business Financing - Look To Crowd Funding

Over the last few years we have heard ad nauseum about small business struggles with accessing capital for growth.

But, even harder hit then your typical Main Street business has been those companies that have yet to open their doors - Start-Up Businesses.

Start-ups have always struggled at getting capital before launching their businesses. They have no revenue, no real prospects, no assets and no brand name. In fact all they really have is a hope and a prayer.

Thus, no lender or investor in their right mind would touch a start-up business - and they usually don't.

But, year in and year out, some 600,000 + new businesses are started each year; according to the Small Business Administration.

These businesses have to get funding somewhere. The question becomes, where?

Each business is different and as such each may find a different or unique way to scrape together the capital needed to launch their company. Some new businesses have to either cash out all their personal resources like home equity, stocks and bonds, deplete savings accounts while some may find investors in their local area or tap their friends and family.

Whatever they do, the bottom line remains the same; small, new start-up businesses can't get outside capital from traditional business loan resources like banks or other financial institutions.

But, over the last decade or so, there have been some really ingenious and innovative entrepreneurs stepping up to fill this lending gap.

By now you might have heard of peer-to-peer lending where members of a network borrow and lend to each other - cutting out the banks or professional investors.

And, recently there has been a renewed push for a similar form of start-up business financing, termed Crowd Funding.

With the huge popularity of social networking and the reach that this direct interaction can bring to one person's idea, crowd funding is getting a new foothold in the business world - really picking up since 2008.

Now, crowd funding is not going to provide your new business with millions of dollars in capital like a venture capital deal would or will it provide you with hundreds of thousands of dollars like a bank loan would. But, it could (should if used right) provide your start-up business with enough initial capital to get launched and begin to generate customers and revenue - because, once your new business does start to show some promise or begins to generate actual business, other financing options will open up to it.

Think about the typical start-up business - a business that is only an idea at this point. What expenses will it really face before opening its doors?

Most new businesses have the following start-up costs:

Legal - For incorporating your business or filing for your business registration - usually around $300,

Rent / Lease - $500,

Leasehold Improvements - $600,

Office supplies and office equipment - $1,000,

Web design and marketing materials to include logo design and brochures - $550,

Utilities / Insurance - $250,

Inventory - $300.

That totals about $3,500. Moreover, for those businesses that don't need inventory or a building to operate out of in the beginning (online businesses), their start-up costs are much lower.

Now, many new business owners end up putting this amount on their credit cards then open their doors and start to build their company. But, given our recent recession and slow recovery, you just might not have the available balance on your credit cards to do this.

In steps crowd funding: Use your social network - those people you know and those you don't but are friends, followers or fans with - to raise that needed start-up cash.

According to VC Deal Lawyer, based on several reputable publications like the Wall Street Journal and the Economist, crowd funders can typically raise between $2,000 and $10,000.

While this amount will not let your business push a national marketing campaign with a Super Bowl ad this coming February, it should be enough to cover those initial start-up costs - allowing your new business to open its doors and begin to get after paying customers.

Further, and as another solid benefit, most crowd funders are not giving away large portions of their company like they might do with local or angel investors or even with strategic partners like CPAs and attorneys.

In fact, very few crowd funding businesses are giving away equity. Why, because it runs up against the Securities and Exchange Commission's rules regarding equity investment in private companies (think Reg D).

Instead, these companies are providing their donors or contributors some type of perk or reward - something tied to the business after it gets up and running - like a coupon or sample or even a personal phone call from the owner.

Just image that you get a personal call from the next Mark Cuban before he becomes a household name - pretty neat!

So, while crowd funding won't provide your start-up with millions of dollars - the type of money that our main stream media companies likes to profile - it should at least cover your very basic start-up costs - getting you out of that start-up mode and into that small, growing business stage.

Further, given our current economic environment, who could really ask for more? After all, if you don't have to really give away anything for it - it is just free money for your new, start-up business!

Small Business Finance Advice

Your small business demands products; chairs, copy machines, faxes, and additional. You aren't confident in the finest strategy to handle funding the tools. Must you lease, obtain, what? This post will appear on the distinct ways apparatus finance is usually handled.

Equipment finance could be accomplished as a result of four major alternatives. Loans, leasing, municipal leasing, and leasebacks are what we will focus on right here. Remember, the selection you pick out for the company will vary depending upon your organization demands and your small business enterprise credit rating.

Equipment Loans: this financing selection permits you to buy the gear through either traditional or non-traditional loan possibilities. Utilizing a loan involves fine economic histories, credit ratings and debt-ratio scores. The gain of utilizing a loan to buy your products is that in the end from the repayment period, you now individual the gear. It is possible to get pleasure from all of the rewards of that equity which can contain taxes incentives.

Products Leasing: this allows you to cost-free up cash flow though nonetheless acquiring the gear necessary to help your in small business finance function. Leasing calls for small credit rating history, usually no down payment, and commonly lowers specifications for credit rating history. Leasing is generally taxes deductible. Contracts are negotiated for specified time periods.

Municipal Gear Leasing: this finance selection is often a tax exempt method of leasing apparatus; nonetheless, it truly is limited to state, county, city, along with other public entities that use taxes funds. The primary motives these entities utilize this kind of funding selection is once they need the equipment and the funds are not offered inside the recent budget, a bond isn't justifiable, prolonged phrase financing in not justifiable due on the brief existence with the tools, or because they merely cannot afford the purchase.

Leasebacks: this option is open to organizations that already very own equipment that ought to no cost up money for other factors. This strategy enables businesses to market of equipment to other parties; even so, the apparatus remains and is leased on the organization that sold it. This enables the business to preserve from interrupting use with the products and to write off payments. It does not interfere with any other credit ratings lines your company may have and does not necessitate any added collateral.

Whatever your predicament, make certain you research the strategy you experience is very best suited to your certain circumstances. Be watchful when deciding on a lender. Ask for referrals and make positive which you examine the fine print in any contractual agreement.

Three Questions to Ask Before Seeking Business Financing

So many times small business (and medium-sized business) owners say, "I need money, I wonder if I can get a bank loan?" Or if they are technology company owners they say, "I need money. I wonder if I can get angel investors or venture capital?"

I say to this, HOLD UP! Do not jump the proverbial gun. There are some other questions you need to ask otherwise you will immediately limit your focus to one or two particular sources of small business financing. Put another way, if you hone in on the "how" too quickly, you shut down your imagination and limit your options. To broaden their perspective, business owners and executive management must focus on the "why" and the "what".

These are the questions you need to ask FIRST:

• How much money do I need? This is a crucial question. Yet there are so many business owners who cannot answer this question. The amount you need is a big driver of the best source of the financing. The true amount may be low enough that you can get a customer to pre-pay and thus have the funds you need. Some financing sources do not consider above a certain amount (i.e., $100,000) whereas others will not consider anything below a certain threshold (i.e., $1 million). If you have NO idea what SPECIFIC amount of money you need, then you are at a severe disadvantage.

• What is the money for? Does your business need working capital? Do you need money to expand sales and marketing efforts? Do you wish to acquire another firm? Do you need funds for software development? Or do you need overall expansion capital to expand the company across all of sales, operations, etc.? Again, the answers to these questions are key to determining the source of financing.

• What are your near, mid-range, and long term goals for the company? Do you intend to sell the company in the not so distant future? You may wish to pursue financing now from a strategic investor who could buy your entire company later. Do you have a number of partners or an intention to grow through partnerships? You may want to leverage those partnerships to cover expenses or obtain investment. Do you wish to expand internationally? Your sources are no longer limited to US-based entities.

Remember, asking the right questions FIRST is the key to deciding who you go to (i.e., the source) and how much you ask for (i.e., the amount). Better questions make for better decisions. Do limit your options by jumping to a conclusion or solution so soon that you shut down your imagination.

Merchant Cash Advances and Working Capital Basics For Small Business Financing

It is frequently a good idea to get back to basics, and this is particularly appropriate for small business owners when they are reviewing if they can increase their cash flow with business cash advances while reducing processing costs. Because many businesses have experienced both decreased sales and increased difficulty in obtaining bank financing, this review of basic working capital management processes should be helpful to most commercial borrowers. The possibility of reducing a significant business expense is likely to be appealing to even the most successful small businesses.

While they will not be discussed here, there are other working capital financing options to consider for a business which does not accept bank cards from customers as a payment option. A minimum monthly volume of bank card sales which typically varies from $5000 to $10000 is needed in most cases to obtain business funding based upon credit card receivables factoring. A lump sum payment is received based on projected future credit card processing transactions when merchant cash advances are obtained by a business. As credit card purchases are processed, the business financing is repaid automatically and gradually (typically covering about seven to eight months). Because they do not have another reliable commercial funding source, this strategy for obtaining working capital is used by many diverse businesses. The need to consider this option has also increased because banks are routinely reducing or eliminating business lines of credit in almost all areas for small businesses.

This might be the perfect opportunity to review the cost structure currently in place for a business because this approach to working capital management is tied so directly to credit card processing activity. Many small business owners chose their credit card processor based upon a recommendation from a colleague or banker. It is not unusual to hear that costs or terms were not reviewed thoroughly before signing a processing agreement.

As indicated, future credit card processing activity is used to repay a business cash advance. A portion of each transaction is automatically allocated toward repayment. In order for this to happen, the processor must agree in advance to handle it properly. Not all credit card processing providers will agree to help with the merchant cash advance repayment process. When this occurs, alternative processors can usually be arranged with minimal impact on daily business operations. A common occurrence is for a small business to realize significant cost reductions when replacing one credit card processing provider with another because costs were often overlooked when the initial agreement was signed.

One of the primary precautions to observe when a small business owner is considering a business cash advance is to ensure that the company providing the business financing does not rush to change credit card processors before determining if they can complete the desired working capital financing. Attempts to change processing arrangements immediately are a clear indication of one of the most serious abuses seen during recent years for companies appearing to offer merchant cash advances. An initial evaluation of whether they can provide financing and in what amount is a more normal and appropriate approach for the commercial funding provider to take. Checking with the existing processor to determine their ability to facilitate repayment of the working capital to be advanced to the business borrower would then be the next step if the initial findings were acceptable to the business. Even if their current processor is willing to work with the business cash advance provider, businesses should consider asking for a review of cost saving opportunities involving their credit card processing.