What does a $700 billion dollar bailout mean to small businesses that need cash to run a business?
The business lending industry is changing quickly; probably for the better. Assuming your business hasn’t been largely profitable for a sustained period of time, lenders will likely look for assets such as major equipment and vehicles which can be used as collateral for a loan. However, not every business has this option available and the role of the specialty lender is emerging to help businesses manage cash flow.
- Factoring loans leverage your company’s accounts receivable to secure a loan. Typically, the factoring company will review your customer agreements and outstanding invoices and advance you a percentage of the overall value of the invoices. The debtor (your customer) pays the factoring company directly who then in turn pays you minus the portion they keep for advancing the money.
- Merchant cash advance (MCA) loans can be considered a form of factoring, but instead of using invoices, it uses your future revenue received via credit card payments as collateral. MCAs can be a great solution for companies who have a larger number of customers with smaller payment amounts. Similar to factoring loans, the MCA lender will receive the deposits directly from your credit card processing company who then in turn pays you minus the portion they keep for advancing the money.
If you are starting a new business, obtaining a SBA loan can be a difficult and somewhat lengthy process (at least until we see whether Obama wins the election). Most new businesses are turning to Angel Investors if they are willing to exchange equity for capital, or turning to business credit cards to get a business started. For businesses that only need cash to cover a short spread between their costs and revenue, debt cards are also becoming more popular.
Just remember that a healthier business (one with positive cash flow and minimal debt) will have more financing options than a company stretched too thin. While the election and economy show us where the future is heading, we should all be implementing sound business principals and manage our business with fewer expenses than revenue.