Getting More Working Capital for Your Business

Lanette Tucker has been with Paragon Financial for 2 years and knows all things factoring.   Paragon Financial was founded in 1994 with the initiative to afford growing businesses an alternative to conventional bank financing. When banks either couldn't grant funds or bestowed too little, Paragon could promptly offer them a steady stream of cash through the factoring of their account receivables.

A common scenario today in business is having a low credit line from your bank.  Lets say you have a $50,000 dollar line of credit with your bank.  You have a long-standing, excellent relationship with your bank but in today's economy it is simply just not enough.   Your credit line is maxed out and the true need of your business is financing of $200,000 or $300,000 dollars to keep your business growing.  What can you do in this situation?  Your business has good credit, the orders are coming in and you are growing at a steady pace.  The only way to take your business to the next level is to secure that much larger line of credit.  What is the solution?

Your business can leverage against your receivables through invoice factoring or purchase order financing through a factoring company.  An experienced factor can work directly with your bank on a subordination agreement allowing you to leverage receivables financing to get the working capital you need to grow your business.

First, what is bank subordination?   A subordination is when a 2nd lender, in this case the factor, asks the 1st lender, the bank, if they will allow the business to take on an additional lender.   Bank subordination agreements are commonly done when leveraging accounts receivable and purchase orders. The accounts receivable or PO's are assets that are used to secure a working capital line of credit.   One of the most common ways lenders will work with each other is through subordination.  Allowing the business to take on both a traditional line of credit and a factoring line of credit

A factoring company can work with your bank and create a bank subordination agreement where their $50,000 dollars is covered by other assets and then a factor can fund against your accounts receivable or purchase orders up to 95%.  This allows the business to take on larger jobs, fund payroll each week and pay for other expenses.  The key is working with a factoring company that has existing relationships with banks and has the experience necessary to compete the transaction. 

Factors are often able to finance your business when a bank will turn you down.   Your bank needs to keep the depository relationship.  Factors do not concern themselves with this because they are not a bank.  Factors simply buy your existing accounts receivables or purchase orders in order for that business to obtain immediate cash payment of the accounts.  They just want to get your the critical cash your company needs to grow your business.

High Risk Borrowers Resort to Unsecured Loans

High risk borrowers can make use of funds for meeting important financial obligations such as consolidating debts, financing education, home renovation, buying car, or even for business expansion. Loans can had up to $25,000.

If you have a less than sterling credit history, you can still land a large unsecured loan. Because of these financially turbulent times, many people have had to take some bad hits on their credit records, often due to a period of unemployment or a financial investment gone awry because of restricted markets.

Arrears, late payments, missed payments, defaults, and even bankruptcies cloud the credit records of some of these folks, making them high risk borrowers. Many people have had these financial pangs and tend to be rejected by many lenders when they attempt to secure a high risk unsecured loan.

Online Lenders Ready for High Risk Unsecured Loans

Traditional brick and mortar lenders such as banks and credit unions have tightened their credit requirements since the housing bust and even good credit borrowers can have a tough time wresting an unsecured loan from them. So, a good place to start your search would be to go online. Private lending companies have stepped in to fill the gap left by the traditional lenders and many of them have set up shop online. As with any online transaction, check the security of the sites and the reputation of the lenders.

In fact, the market for high risk unsecured loans is so great that the many lenders offering such loans have to face some tough competition. You will be able to shop around for lenders with the lowest interest rates and the most comfortable repayment terms. You will even find brokers who will take your general information and provide you with a list of lenders who will probably lend to you based on the information given. Compare quotes and terms to find the most suitable deal.

Facts on High Risk Unsecured Loans

Since no collateral is required for these loans, and since the borrower already has a poor history regarding repayment, the lenders have to adjust their rates to cover the risk. Secured loans offer collateral which the lender can seize should the borrower default. Thus those loans tend to have lower interest rate because of the security offered to the lender. With the high risk of unsecured loans, you will find interest rates to be considerably higher than what the loan market usually offers.

Online application for high risk borrowers in need of unsecured loans is wonderfully easy and quick. You will need to offer documentation regarding your identification, your job history and present salary, proof of residency, and access to an active bank account (usually a checking account with direct deposit), and of course, your social security number. Often approvals are made in a matter of minutes and funds can be in a bank account within 24 hours, sometimes sooner.

Using Your High Risk Unsecured Loan

Hopefully you will have done your budget homework and requested just the amount you need with payments that are comfortable. These loans can range from $1,000 to $25,000, depending on your salary and your financial situation. The terms of repayment can range from 1-10 years. Remember that the longer the time and the lower the payments, the more interest you will be paying. Since you are a high risk borrower, repaying such a loan can improve your credit history to a great degree. Timely and regular payments will also make it easier for you to get such a loan in the future should you need it.

Unsecured Credit Line for Businesses

Starting up a business is a bit of challenge in financing. Sometimes emergency cash is not enough, that's why business owners must consider acquiring an unsecured line of credit.

Financing the business is one of the toughest challenges a business owner must face.  Whether you are running a new business, a start-up one, or even an established company, there will always be the need for financing.

Indeed, the need for cash will always arise and at times, the business owner will be confronted with this challenge when it is least expected.  For this reason, business owners are advised to seek an unsecured line of credit with a trusted lending company, to make sure that there is a reliable financial resource that they can turn to at any time.

Many lending companies in the market offer various types of business financing, including an unsecured line of credit.  Some lenders require the business to be at least two years in existence to be given this type of financing.  Another important factor is credit history. Good personal and business credit standing are important in order to qualify for an unsecured line of credit.

An unsecured credit line can be used to cover for various expenses such as purchasing additional equipment, stocks or raw materials, improving the office space, and other unexpected expenses.  Once approved for a business line of credit, the business owner can make cash advances at any time without the need to go through the whole process of reapplication.  There is no need to wait for months for the approval of your loan application. 

Business Credit Cards – Unsecured Credit Line for Businesses

Small business credit cards are a great example of an unsecured credit line for business.  Unlike business loans, it is much easier to get approved for a small business credit card even for those with no business credit.  In fact, small business credit cards are the exact tools you need to start building corporate credit.

In the absence of business credit, the personal credit history of the business owner will be closely evaluated.  Of course, the higher your credit score is, the more you are likely to get approved for an unsecured small business credit card with good rates.

On the other hand, for those with bad credit rating, secured small business credit cards can be used to rebuild bad credit.  To get a secured credit card for business, you only need to submit a security cash deposit to your account.  Generally, the value of your security cash deposit will also determine the amount of your credit line.

Another essential factor to consider is to find a business credit card that will report your payments to major business credit trackers like Dun & Bradstreet- the leading business credit tracker in the country.  This way, you can build up your business credit as you pay your bills using your small business credit card.

By obtaining an unsecured business line of credit, the business owner is given the flexibility to manage debts and repayment in an efficient way.  However, it is important to remember that managing a revolving credit can also be a challenge that can make or break your business credit standing.