The last thing any small business owner wants to worry about is whether or not they’ll be able to meet their day to day operating expenses. While cash flow is a going concern for all companies, it just seems to be a much bigger issue for small business owners and entrepreneurs. What’s the solution? Well, small business owners could go for an extended business line of credit or business loan with their bank. However, that takes time and is becoming more problematic as banks and other lending institutions tighten their credit limits in response to a slow economy. There’s also the possibility of being rejected, which is often extremely difficult to deal with. So, what else is there? More importantly, what do those larger enterprises do when confronted with uneven cash flow? Surprisingly, there are a number of small business financing alternatives that are fast becoming the preferred borrowing method for small business owners.

Regardless of the size of a given company, one of its greatest assets is always its customers’ invoices or receivables. It’s these assets that are used by companies as collateral, allowing them to draw upon their value with a finance company specializing in alternative financing solutions. One of these solutions involves accounts receivables factoring. In this case, the company can draw upon the value of their outstanding customer invoices with the finance company. A portion of the invoice’s value is provided to the small business owner and the finance company proceeds to collect on the invoice. Once the entire invoice is collected, the finance company then returns the remaining portion back to the small business, minus a charge for their services. There are two main approaches to factoring. One is recourse factoring and the other is non-recourse factoring. Options are structured around the entrepreneur’s risk tolerance and allow business owners to choose different initial payouts with different risk obligations.

Other approaches include asset-based lines of credit where entrepreneurs can use their company’s assets (inventory, receivables etc) as collateral and run a day to day operating line of credit. Other approaches include purchase order financing where the value of the customer’s purchase order can be used as a form of credit where the company can use funds to buy the materials and parts needed to complete the order. Once the product ships, the finance company claims the invoice and proceeds to collect from the small company’s customer. For small business owners, there are a number of financing solutions and one not need only deal with banks to pay those day to day bills. Small business financing can be an easy solution to solve your cash flow needs.
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