There are essentially 3 types of alternative loans for working capital:
Factoring Receivables: Many times, businesses 소액결제현금화 that invoice their customers for payment have to wait for those customers to pay – sometime 30 days, 60 days or more. But, those same businesses face their own capital challenges like having to pay employees, buy additional inventory or supplies or starting the next job or order – yet not have the money on hand to do so until those invoiced customers pay.
However, accounts receivable factoring companies will advance up to 90% of those outstanding invoice amounts so that your business can move forward. Then, when your customers do pay, you pay back the advance, keeping the remaining 10% – less a factoring fee.
Purchase Order Financing: Remember our “Any Time Tools and Machines” franchise that needed capital to get – say on loan or lease – machines to complete a huge $1 million dollar job but did not have any way of doing so.
Well, that franchise could have still signed that job order then taken that order to a purchase order financing company and received the needed $100,000 – the full 100% of what it needed to complete that job.
Then, when the job was completed and the franchise got paid, it could repay the financing company the $100,000 advance and a small financing fee and not have lost out on that highly profitable job.
Cash Advances: Let’s say that a retail franchise operation has already purchased the inventory it will sell over the upcoming summer season – it submitted and paid for these orders months ago to ensure that it would get its orders fulfilled by its suppliers in time.
However, a few days before the summer season kicks off – after the company has already spent its current allotment of working capital on its inventory but before it could sell any of those products for revenue – a new fade (for its market) becomes a national frenzy – forcing its competitions to scramble to get products for his new fade.
Yet, without additional working capital or a way to get it, this business will lose out on this fade and the profits that come with the high impulse and emotional consumer buying that follow these frenzies.
Now, this franchise does not have accounts receivables to factor nor does it have purchase orders on hand as its consumers do not make large advanced purchases.
But, since the business does earn revenue month after month – it can receive a cash advance against future sales – then use that advance to buy the new fade products.
Then, as it sells those products over the next few months, the financing company will simply take micro payments – usually daily – from those sales until the advance is paid in full – plus a small fee.
Here, the franchise could receive an advance against the amount of average monthly sales its earns via customer’s credit and debit card purchases (called Business or Merchant Cash Advances) or could receive an advance against its entire monthly revenue averages (called Bank Statement Loans or Revenue Based Loans) – essentially solving this franchises working capital problem in a matter of days.
3) Plow Back. Now, if your only option is to use outside financing for your business, then bank lines of credit or alternative financing are your best options.
However, you can – and should – manage your operations and your revenue in such a way that you can internally finance your own working capital requirements.
It simply works this way: Your franchise earns say $20,000 top line revenue per month. However, after paying direct costs as well as overhead expenses for salaries, marketing and general administration costs, it has net operating income (after taxes and interest) of say $7,000 – $7,000 that it would either use to pay down debt, pay back investors or simply take out of the company.
But, if you also know that your business needs an additional $5,000 per month to handle its future monthly working capital or operational capital needs – then why not hold back that amount from the $7,000 net income and plow it back into the business. Much cheaper to do it this way – using your own money – then to face the added expense of financing your business’s working capital needs.