How To Finance Your Business When The Bank Says No.

Do you own a growing business that needs financing? If you are

like most business owners, whenever your business needs money

you head over to the bank. Unfortunately, as most small business

owners soon find out, most banks do not lend money to

businesses unless they have significant collateral and a

history of successful operations. This presents quite a

challenge for business owners.

When banks are not an option, small business owners turn to what

is known as the alternative financing funding market. Although

the financing options discussed in this article fall

under the alternative financing category, they are actually quite

widely used and should be considered mainstream. Most major

companies (including public companies) have used this alternative

financing at one time or another during their growth history.

Most of the tools described in this article can only be used

by businesses that are already in operation, and whose main

requirement is working capital. Although startups can benefit

from these tools, the companies will need to be in operation

for a little while and have a growing list of clients.

General Invoice Factoring

Invoice factoring (also known as accounts receivable factoring)

is ideal for business owners who cannot afford to wait 30 to

90 days to get paid by their clients. It allows a business to

sell invoices from commercial customers to a financing company

for immediate payment. The financing company buys the invoices

at a discount and waits for the customer to pay.

The main advantage of factoring your invoices is that the

financing company makes its decision using the credit of the

payer, rather than yours. That means that if you own a small

company that is doing business with a large credit worthy

company, you are almost certain to have the transaction

approved. Another advantage of factoring is that it does not

have set limits like lines of credit. The level of financing

is limited only by the amount you sell to credit worthy clients.

General factors can work with most industries, although there

are two main industry subspecialties - freight bill factoring

and medical factoring.

Freight Bill Invoice Factoring

Trucking companies tend to be very cash hungry businesses. The

owners need money to pay their drivers, pay gasoline and pay

suppliers. However, most trucking companies also work with a

high volume of freight invoices from credit worthy clients.

That makes freight bill factoring an ideal solution for their

cash flow issues. Just like in general factoring, the factoring

company buys the freight invoices from the trucking company for

immediate cash.. Furthermore, the risk for these types of

transactions is lower than in general factoring. This means that

trucking companies can qualify for preferential financing terms.

Medica l Factoring

Most medical industry businesses (doctor's offices, hospitals,

medical testing centers and medical supply companies) make the

bulk of their earnings by billing 3rd party insurance companies,

Medicare and Medicaid. Unfortunately, insurance companies are

notorious for paying their invoices in 30 to 90 days, creating

cash flow problems at the medical office. Factor ing medical

offices is a subspecialty of general factoring. Given the

complexities of the insurance industry, it usually requires

the participation of a factoring company with extensive

industry experience.

Generally speaking, the medica l factoring company will

provide you with financing based on your NET collectables

rather then your gross collectables. They will also need to

be part of the billing process, to ensure that they finance

the right amounts. Due to its complexity, medical factoring

is only accessible to medical businesses making at least

$100,000 a month. However, if your business qualifies for it,

you will find that it is a great tool to streamline your

cash flow and grow.

Purchase Order Funding (a.k.a PO Financing)

Most distributors and import/export companies tend to be very

cash hungry businesses, in part because of how the sales

process works. Usually, the process starts when the distributor

gets a purchase order (PO) from a client. They then purchase

the items from their supplier, who then drop ships it to the

end customer. This works well as long as the company has

enough money to pay the suppliers and wait for their clients

to pay for the product. However, sometimes a payment can take

up to 60 or 90 days to arrive, creating a big cash flow

challenge for the distributor. Other times, the company may

become too successful and get a purchase order that is too big

for them to finance. In these instances, the company should

consider purchase order funding financing. With PO financing,

a finance company handles your supplier payments and ensures

that the goods are properly delivered. Once the client pays

for the product, the transaction is settled and all parties

are paid. PO funding is a product that truly allows you to

grow your company - sometimes exponentially - while using

someone else's money.