Alternative Financing Solutions
Do you need to purchase assets for your new business but
don’t have three years of profitable financial statements?
Many small businesses have difficulty getting access to
capital when they do not have three years of profitable financial
statements, sufficient equity in the business due to start up
issues or some related challenge. Yet, these types of capital
resources, asset-based lenders, leasing companies, factors and
others, have made a niche out of servicing these business needs.
Don’t dismiss the opportunity without exploring the options.
These “hard money” capital providers may be just what
you need to get you through the tough times.
Asset-Based Lenders include household and
commercial finance companies, which may advance funds according
to traditional loan to value ratios (50 – 80%, or those
which may loan more than 100% of the value of the collateral. Of
course, the higher the risk, the higher the interest rate. These
lenders will always require collateral such as real estate, cars,
equipment, accounts receivable etc.
Factors are companies, which actually buy
your accounts receivable from you, rather than loan against them.
In factoring, your financial condition is not as important as the
financial statement of your customer. The factor will advance
funds, based on a formula, then collect the entire amount from
your customer. The factor earns a fee of between 3 and 6% per
month, until the account is paid in full. Upon payment, the
factor deducts what was previously advanced, plus any fees then
gives the company the remaining amount.
Leasing Companies are also a common way of
accessing capital for assets needed in the business. You name it,
from ovens, to automobiles, to forklifts, some leasing company
will write an agreement on it. Leasing is attractive because it
does not require a big down payment. However, the entrepreneur
should consider not only the leasing costs, but additional
expenses such as insurance with higher coverage and replacement
costs. A "closed end" agreement provides you with the
option of owning the equipment with a lump sum payment. In an
"open end" agreement you may owe a lump sum, but still
not own the equipment.
