With the ongoing financial challenges of the current economic climate, it is fairly obvious that entrepreneurs need to be financially savvy as well as creative in how they drive their businesses. The banking industry is tightening up their credit score standards and alternatives once available to the small business owner are no longer viable options.
Due to increased regulatory pressures, as well as an increasing number of foreclosures and related banking woes, fewer banks are in a position to assist small business owners in their quest for financial options to keep the cash flowing for the business owner. There is help in the form of accounts receivable financing for the small to medium sized business.
Accounts receivable financing, and other alternative financing options, are available through American Funding Solutions. We are a factoring business and we differ from a bank in many respects. A banker extends credit based on the financial condition and cash flow of the borrower. The borrower is expected to keep up with regular (usually monthly) payments to the bank… whether business is good or slow. Therefore, it is often required that the borrower meet certain financial requirements, including, but not limited to, a long, successful history of business with an acceptable cash flow history. These requirements are difficult for start-ups and certainly may prove difficult during the recent economic challenges we have been facing.
On the other hand, a factoring company does not require the client to demonstrate a proven history of profitability. As a rule, factoring companies are more interested in the credit history/financial strength of the client’s customers. If those that the client provides goods or services for are financially strong, then the factor can offer financing in the form of accounts receivable purchasing.
In other words, the factoring company views an invoice as an asset. The goods/services are delivered to the customer, the invoice is verified, and the advance is funded. Often times the transaction can be completed in a couple of days and the business owner can have the necessary cash to meet payroll, purchase supplies, pay rent, whatever is needed to keep the business’ cash flowing.
Factors often work hand in hand with banks. A business may have a working relationship with a banking institution and find that they suddenly have a need for additional working capital. Whether it is due to the sudden onset of the need or the fact that the client has a need that exceeds an existing line of credit, the banker can put the client in touch with a factor that can assist with a type of bridge financing that alleviates the crisis.
Factoring receivables is a great financing tool often utilized by small businesses. It provides a flexible, readily available financial tool to increase liquidity. We at American Funding Solutions are in business to provide working capital to growing businesses and we would like to help you sustain your business’ growth.