Creative Financing for Small Businesses
In today’s economic climate, finding suitable lending options for small businesses can be a challenge. While some consider debt to be a negative, successful small businesses understand that it can provide much needed leverage for organizational growth. But, what types of lending are available to small businesses?
First, let’s take a look at a real life business example. A manufacturing company based in Dallas, Texas is looking for funding in order to expand their overall production level. The company is currently profitable and able to produce a regular volume of products for their current customer base. But, the leadership team is thinking big- they are in search of the big retail accounts; Walmart, Walgreens, and other major retailers. In order to produce the level of volume these major organizations need, the manufacturing company must seek capital.
The capital is needed for a variety of reasons, including inventory purchases to produce the products as well as bridge capital to cover the accounts payable delay that many of these bigger companies enforce. When working with smaller vendors, the manufacturing company could expect to be paid for their products within 30 days, but with bigger companies like Walmart, their invoice period may be 90 days. This delay can present a significant problem for a small company with little cash reserves on hand.
So, the manufacturing company began to look at options including bank lines of credit, credit cards, SBA loans, equipment financing and factoring. One of the most appealing options, even though there is a fee to utilize it, was factoring. Invoice factoring would allow the manufacturing company to receive a portion of the initial invoice order from a company of Walmart upfront. These funds could be used to purchase the much needed product to produce the final orders. Without these funds, the small business would have been at a standstill.
So, when working to secure funding, be sure to consider both traditional and non-traditional channels.
Note: One of the companies who do this in Canada is BPF Solutions.
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