Business Finance Options for a Growing Company
If you have ever been involved in a business start-up, you know how difficult it could be to get business finance for those first few years during which you are struggling to establish yourself in the market place. You have to spend huge amounts of money on marketing, you have to buy new tools and machinery and you have to provide favourable payment terms to your debtors to prevent them from choosing one of your competitors.
If yours is the type of business with lots of fixed assets; buildings, land etc. you might find it relatively easy to get access to bank finance. You will, however, find the application and approval process cumbersome and the repayment terms inflexible.
Raising business finance through invoice factoring is, in many cases, a better solution. You do not have to provide the factor with financial statements or even credit references. All they are interested in is that you have outstanding invoices to cover the amount you want to borrow. Normally they will then give you a cash advance of up to 85% of that amount. Once your debtors have paid, they deduct their fees and pay out the balance.
This has several benefits. The more you sell, the more cash you will have access to, which is great if your business is growing. On the other hand, if there should be a downturn in the market, you are not bound to a fixed monthly repayment, if you receive less money from your debtors your responsibility towards the factor will decrease accordingly.
If you opt for non-recourse invoice factoring, the factor will even bear the risk of unpaid debts. This will have a cost implication though, based on a percentage of your outstanding debtors. With recourse financing your business has to bear that risk.