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Alternative Funding for the Small Business

-- 2011-02-01 8:00 am --

Launching a new business entails comprehensive planning, unwavering ambition and implementing appropriate financial strategies. With determination and persistence, the aspiring entrepreneur will certainly succeed, however; maintaining and managing the small business can be a daunting task. Many small businesses, especially new businesses, will encounter monetary difficulties such as inadequate working capital and inability to pay vendors. A steady cash flow and obtainable funding is imperative to keep a business afloat and ensure its continuous growth. There are many financing options available for the small business when additional funding is essential. Since most small businesses will experience complications when trying to obtain funding through the conventional bank loan, many will opt for alternative funding options such as the Merchant Cash Advance, Invoice Discounting and Accounts Receivable Factoring.

In contrast to the traditional bank loan, alternate funding is generally an uncomplicated and effortless process. Whereas a bank loan approval will only be given for a business with superior credit history and prior lending experience, alternate funding providers will base their approval on other applicable factors. Authorization is provided promptly, which is imperative when immediate funding is necessary for the business to succeed.

Merchant Cash Advance

The Merchant Cash Advance Company will supply the firm with a one time loan to invest in the business. In return, the business authorizes the MCA company to withhold an agreed upon percentage amount of future credit card and/or debit card sales directly from the processor. Once the loan’s obligation is met, the automatic monthly retrievals cease. Small businesses benefit from the process of reimbursement as the payments go according to the business flow. If the business is advancing and sales are increasing, the retrieval rate will be expedited. If business is rather slack and there is a decline in sales, the rate of return will take longer. This flexibility gives the business the ability to focus on fortifying and improving, as opposed to being occupied with the demands of repaying a loan.

Accounts Receivable Factoring

Accounts Receivable Factoring enables the small business to obtain immediate cash to stabilize and further invest. The factoring provider will purchase the outstanding invoices from the business at a discounted rate, by this means taking full responsibility of payment collections. The business, in exchange, will acquire instant funds to increase its cash flow and facilitate expansion. The business will also be benefiting of having less time spent on accounts receivable handling and more effort put towards the firm’s development and growth.

Invoice Discounting

The Invoice Discounting Facility will lend the business funds against issued invoices awaiting payment. This option bridges the gap of when the invoices are initially issued and when payment is actually received. Unlike the factoring option, where the business will relinquish its accountability of payment collections, invoice discounting will allow the business to maintain constant interaction with clients and strengthen customer relations.

Many businesses rely on alternative funding options when financial assistance is crucial, especially during tough economic times. The accessibility and convenience of acquiring funds to increase its working capital and pursue new venues, motivates the small business to choose alternative funding when short-term loans are essential.