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Financing your small business

-- 2011-05-05 5:00 am --

Small business financing has certainly taken a hit over the last couple of years. With banks, credit unions and other lending institutions limiting access to credit, or raising the cost of credit altogether, small businesses have been left to pick up the pieces. Faced with declining revenues, decreased customer demand and a client base taking longer and longer to pay its invoices, securing business financing has quickly become a going concern for today’s small business owner. However, what options are there for small businesses unable to secure the working capital their business needs? Surprisingly, there are a couple of simple, straightforward and easy-to-use strategies that improve a company’s cash flow position and expand its options on business financing. It involves going outside conventional lending options and adopting a more proactive stance to managing the company’s finances. So, what can small businesses do to resolve the financing issues facing them today?

1. Use the Liquidity Within the Company’s Assets

A number of small businesses have started to pursue Asset-Based Lending (ABL) options where they can tap into the value and liquidity of their existing assets in order to finance their day to day operations. These options have become increasingly popular over the last couple of years in response to the unwillingness of banks and credit unions to extend affordable business credit. ABL financing works because it allows small businesses to use the liquidity within their assets to secure a working credit limit with a financing firm. These assets include the company’s inventory, warehouse & real-estate holdings, receivables, machinery & equipment and even miscellaneous items such as its office furniture and computer equipment. Now, the intention is not to leverage these assets so much that the small business finds itself in a weakened position. Instead, the purpose is to use avenues like account receivables factoring to improve cash flow by not having to finance customer’s business waiting for them to pay their invoices.

2. Aggressively Manage the Company’s Finances

Improving the company’s finances means to be open to pursue new avenues and strategies. Those customers the competition has ignored because of poor credit means small businesses can tap into a relatively quick and easy sale. In addition, customers with poor credit are always required to prepay, which improves a company’s cash holdings. Pursuing discounts for early payment is also an option with vendors and creditors and should be pursued at those times when the company’s cash position is strong. In essence, it’s about being aggressive with the company’s finances and securing the long-term savings so vital to the company’s operations.

ABL financing options have increased in popularity over the years and have become a mainstay in business financing for all companies, regardless of size. Today’s economic climate only exacerbates the financing issues small businesses face, which ultimately makes enacting those plans for growth extremely difficult. Small business owners must be willing to pursue different financing options and be willing to work with vendors & creditors to lower the company’s cost of money. It’s about being aggressive with the company’s finances by becoming more proactive, instead of reactive.