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How do you finance a business that's trying to expand?
Our existing business model is working well, but we need more capital so we can grow into new areas. What do you recommend using...loans? Venture Capitalists? Angel Investors?
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5 Answers
There are various ways to finance an emerging business, including getting credit from suppliers and borrowing from owners assets.
But one method that is somewhat unknown and often misunderstood is "invoice factoring." This financing is based on the creditworthiness of the "customer" of the borrower, rather than the financial condition of the company who is growing. The benefit here is unlimited access to capital, as each order is completed (service or product) the growth company or client gets paid immediately and the factoring company waits for the customer to pay their normal invoice.
This is straight forward and easy to comprehend. The client gets an order, fulfills the order, gets paid by the factor and the customer pays the factor.
There are bells & whistles, and certain wrinkles to this concept based on how the factor operates, you can read an insiders view of this on our blog http://www.ccassociates.com/blog
There are many ways of financing a business in terms of equity and debts financing. For debts financing, the cost of financing is less costly than equity financing. Debt financing will incur a lower risk than equity financing.
A well-balanced capital structure consists of a mixture of equity and debts financing of the business. A business should analyse the capital structure before deciding on the financing methods for the expansion of business because this may affect the financial position of the business.
I agree with Gary. Invoice or receivable factoring is a great means of obtaining capital for new and emerging companies. Credit-worthiness of the consumers are used rather than credit-worthiness of the business, allowing almost any company to secure financing through receivables or invoices.
Feel free to contact me directly if you have any questions or concerns, if you would like to learn what programs are available with Conrad.
Eric Schoep
800-826-6723 x331
ESchoep@ConradCo.com
If your business sells directly to consumers, invoice factoring is not an option to you. However there are many new lenders in 2010 that will make a small business loan to you. We can help you identify a program and lender that fits your businesses - finding you the most financing at the best rate. Please visit www.cashfederal.com or call us at 877-331-2002 for more information.
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