While a great vision and business plan are crucial, obtaining sufficient funding is one of the most important elements a startup needs to succeed. From needing a little push to launch and fueling rapid growth to managing the ups and downs in between, every business can benefit from some type of financing. While many founders turn to traditional lenders or their own capital, there are other (and often more ideal) options available.
What is Alternative Lending?
In short, alternative lending refers to business funding options that are available outside of traditional bank lending. With fewer costs and restrictions than traditional lenders, alternative lenders are able to focus more on providing flexible requirements, offering streamlined processes, and investing in small businesses others deem “too risky.” Alternative lenders offer a wide range of business financing products: invoice factoring, microloans, merchant cash advances, equipment financing, and more.
The driving force behind this relatively new funding source was the Great Recession. As the aftermath of the 2008 financial crisis drove bank retrenchment from small business lending, alternative funding began to pick up speed. While new regulations increased the cost of capital for traditional lenders, alternative lenders slipped in to fill the void and give businesses of any size a chance at qualifying for funding.
Fast forward to today, more and more businesses are choosing alternative funding options over traditional lending. Why? As an example, consider the many advantages of using invoice factoring, which are described below.
What is Invoice Factoring?
One of the oldest forms of financing, invoice factoring allows businesses to turn their outstanding invoices into immediate capital. Most companies offer payment terms for their services, which often means waiting for 30, 60 or even 90 days to receive payment. While offering payment terms is common, slow-paying customers can quickly leave your business in a financially challenging situation.
Factoring allows you to sell your accounts receivable to a factor at a discount and receive up to 95% of an invoice’s value. Essentially, you are leveraging your business’ unpaid invoices to secure the quick capital you need to manage cash flow, operate smoothly, and fund growth. The fact that your business is given money it has already earned for its immediate capital needs has made factoring a very compelling cash solution.
Here are just a few of the reasons why your startup should seek financing through an invoice factoring company:
1. You Get Access to a Quick Source of Capital
As a startup, having quick access to working capital is crucial. This is especially important in the early phases of your company’s journey when cash flow is low and growth needs are high. You are busy building a team, attracting new customers, and strengthening your financial situation. But you may not have enough cash on hand to fuel rapid growth and manage unexpected costs. With invoice factoring, your business can bypass the typical 30 to 90 day invoicing process and secure cash in as little as 24 hours – a major benefit for cash-strapped startups.
2. You Do Not Need Extensive Financial History
Obtaining financing through a traditional lending source can be tricky for startups. Banks are more inclined to reject small business loans, preferring to lend to established businesses with an extensive financial history. Invoice factoring companies, on the other hand, do not focus on the financial history of your business when determining your eligibility. Instead, eligibility for factoring is largely based on the creditworthiness of your customers. Because the factor assumes the responsibility of collecting payment from your clients, they are primarily concerned with their financial standing.
3. You Can Secure a Flexible Financing Amount
One of the hardest things to manage as a startup is rapid growth. Increasing inventory, adding to your team, expanding to a new location, buying equipment, and accepting large or multiple orders all require additional working capital. Rather than letting insufficient cash flow keep you from growing your business, you can accept new jobs by utilizing factoring solutions. The amount available through factoring is only limited by the number of eligible invoices you have to factor, making it the ideal solution for your growing company. Ultimately, it provides the capacity to grow at a faster pace than your startup could ever achieve on its own.
4. You Gain a Partner with Industry Expertise
From the outset, every startup founder knows they will face their own unique set of challenges. It is important to choose a lender that understands the obstacles and opportunities your business and industry face. A reputable and reliable factoring company not only provides immediate capital but also valuable support and expertise. While some factoring companies serve a wide variety of industries, others focus on a specific niche. Partnering with a factor that specializes in your business type and industry allows you to secure the customized cash solution you need to support your unique situation, needs, and goals.
Security Business Capital’s Invoice Factoring Services
Are you searching for a factoring company to build a long-term and productive relationship with? Consider the dedicated team of professionals at Security Business Capital. Based in Midland, Texas, SBC is a premier factoring company with years of experience. Our team of experts specializes in helping startups and small businesses secure the funds they need to manage cash flow fluctuations, operate smoothly, and grow their business. Oil and gas, staffing, manufacturing, distribution, transportation, and business services are just a few of the industries that regularly use our solutions to generate cash on hand.
If you have any further questions about invoice factoring or how our services work, contact us today for a free quote and/or consultation.