Alternative Business Financing

Are you looking for a business financing solution for your company? Does your company have cash flow problems and needs funding? Read this article to learn if factoring financing can help your business.

Finding the right solution to finance a business has always been a challenge for owners. Most are only aware of conventional products, such as business loans or lines of credit, that are offered by financial institutions.  While this products can work very well, they are usually offered by financial institutions that have conservative lending standards which can make the inaccessible.

Not too long ago, getting a business loan was relatively easy, especially if the business owner had a home that could be used as collateral. Nowadays, business loans are much harder to get. Financial institutions will ask for two to three years worth of financial statements and review them very carefully. Likewise, they will only get involved in lending transactions if the business has substantial collateral and if the owner has a significant net worth.  These criteria all but rule out small business. Because of this, alternative business financing solutions have been on the rise.

Most small companies that look for business financing do so because they have cash flow problems. Usually these happen because the company has to give 30 to 60 day payment terms to their customers but has expenses that need to be paid quickly. In effect, they can't afford to wait up to 60 days to get paid. One obvious way to fix this problem is to use a line of credit to cover expenses while waiting to get paid. But if a line of credit is not an option, invoice factoring may be the right alternative solution.

Factoring is an form of business financing that accelerates your cash flow due from slow paying customers. It works by using a financial intermediary, called a factoring company, that advances funds  against your slow paying invoices. The factoring company holds the invoices as collateral, while your company gets a cash infusion that can be used to meet your current business expenses. The transaction is settled once your customers pay the invoices , though many companies establish revolving factoring lines that can be used on a regular basis.

Most factoring transactions are structured so that invoices are funded in two stages. The initial advance is provided  as soon as the work is completed and your customer is invoiced. Most initial advances are for 80% of the invoice, but this can vary based on certain conditions. The second advance is provided once the invoice is paid in full and covers the remaining 20%, less the factoring fee.

Factoring fees usually vary based on a few parameters such as the creditworthiness of your customers, the quality of your invoices, how long it takes for your customers to pay and the size of the factoring line.   Generally the factoring fee will be based on a percentage of the invoice.

One of the main advantages of invoice factoring is that it's easier to obtain than most conventional financing. The most important criteria to qualify is the credit strength of the companies that will pay your invoices - this represents the collateral for the factoring company. Aside from that, your invoices need to be free and clear of any legal or tax encumbrances.  Lawsuits, judgments and tax problems may hinder your company's ability to  get factoring financing. Most factoring companies will check this information during their due diligence process.

The biggest benefit from factoring is its flexibility. Most factoring lines are not based on fixed amount, but rather are tied to your sales. This means that the invoice factoring line can grow with your business, provided that your sales to are to credit worthy companies. This makes factoring an ideal solution for small and medium sized companies that have good potential that is being hindered by cash flow problems.

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How to Get Your Government Grant Fast For a New Business

There are many grants that are offered by the federal government that can help you turn your business idea into a money-making business. No matter what type of business you would like to open, there is probably a federal government grant that can help you turn the key to your new business opportunity.

Your Business Plan

The first step in obtaining your new federal government grant to start your business is to create an effective business plan that explains in detail the intricacies of your new business. You will need to create both a start-up and operational budget that will give you a rough estimate of the amount of funding that you will require to get your business up and going, and how much money your business will require to be operational during the first formative years of the business.

Drawing Up A Budget

Your budget should allow for expenditures such as purchasing or leasing property or a building that you will use as headquarters for the business; the purchase of fixtures, such as shelving, displays, office furniture, computer equipment and other hardware; remodeling or renovation of the premises, including any additions that you will have to construct or add on to the existing facility; purchase of any company vehicles that you will need for business use; purchase of inventory or equipment; an allotment for advertising and publicity to promote the business and draw in customers and clients; and money to train employees and pay salaries or wages. Make a reasonable and customary estimation of the amount of funding that will be required for each item on your budget, and also note where you plan to purchase each.

Once you have established your budget, you will have a clearer picture of how much money you will need for the start-up phase, opening, and operational phases of your business. Having a reliable figure to work for will assist you once you decide which grant or grants you want to apply for.

Where To Look For Grants

All federal government grants are cataloged in a free publication entitled the Catalog of Federal Domestic Assistance (CFDA), which is available by request from the federal government. You can also download this catalog online.

Browse the CFDA for potential grants that your business might qualify. You can search by keyword, federal agency, and by other search criteria. Once you have identified the grant(s) you find interesting, study the grant eligibility requirements. Take care to make sure you or your business idea qualifies for the grant before you spend time writing the application.

Some federal government grants require you to first begin with your local or state government agencies before moving on to federal branches of the agency that distributes certain grants. Study similar funded projects to see how your business idea compares to those that have won grant funding. Make special notation of any post assistance requirements that may be attached to the grant you are applying for. If there are special records you must keep, reports you are required to submit, or audits by the issuing agency, you need to be aware of these contingencies in advance, so that you can prepare well for them.

Applying For Your Grant

Once you have decided that the grant you have researched is the right one for you, you will need to contact the agency to request a grant application. Oftentimes, the application is available in a PDF format for you to download and print. Complete all aspects of the application and submit the application to the appropriate agency. If there is a deadline for submission, be sure to note the date so that your application can be considered timely.