While crowd funding is all the rage for starting a business, what options are out there for existing businesses that need financing? An existing business can get financing from several sources:
1. Ask friends and family
2. Apply for a business line of credit or loan from a bank
3. Take on investors
4. Invoice Factoring.
Invoice factoring is quite popular among business owners since they do not have to give up any control over the business to investors, create debt on their balance sheets, or payback friend and family. Invoice factoring is not a loan, it’s a cash advance on existing sales. So, this particular form of financing acts like a self liquidating line of credit.
The amount of money available to the business is based on actual sales, not future sales projections. While invoice factors have gotten a bad rap in the past, popularity and product awareness has driven competition in the market place. Now, businesses can find very business-friendly factoring companies to work with.
Credit lines usually range from $10,000 up to $100 million, this form of finance works for almost any size business in almost industry. Businesses factor receivables for a variety of reasons including making payroll, getting caught up on payables, and purchasing equipment. However, one of the most common reasons for needing quick, frequent access to working capital is to capture growth opportunities.
While some people my view invoice factoring as an “expensive” form of finance, is probably costs the business a lot more to turn away business than it does to pay a little extra to borrow money. This infographic provides a quick overview of how factoring works and other pertinent details.