Many entrepreneurs are launching their young companies towards success through the use of commercial financing. A commercial financing product can be a great substitute for a bank loan or raising additional capital and has a lot more to offer than meets the eye. Here are five of the top reasons businesses are choosing to use a commercial financing option:
1. Banks are tightening credit standards– Growing companies with limited capital and operating history or prior losses are finding access to traditional bank loans more difficult. Non-bank lending sources tend to focus more on future opportunities than past challenges. Many more financing options exist today than just traditional banks so companies should expand their considerations beyond traditional sources.
2. Flexibility– Invoice financing or factoring relies on the strength of your customer and your ability to deliver the product or service. It is less focused on your equity or earnings history. Factoring can be used as needed and not all invoices need to be financed. Companies can also use factoring providers to assist with invoice collections or credit approval of new customers.
3. The value of sufficient funding– Commercial finance solutions like asset-based lending expands and contracts with the needs of your business so your loans match your current funding needs. This really enables you to finance your company the way that you want to. It is focused on specific asset classes as well: A/R, inventory, equipment, and real estate, which are financed based on specific loan formulas in order to maximize cash availability.
4. Added Value– Depending on the stage of your business, commercial finance products will cost you 1% of your gross profit margin and usually the benefit outweighs the additional cost. This financing is much cheaper than raising additional equity or utilizing merchant cash advance programs. It is normally more cost effective to leverage a commercial financing solution than turning down a new business opportunity due to lack of traditional financing. Sufficient financing also provides you the freedom to focus on your business.
5. Complement to other forms of financing– Alternative financing can be used in conjunction with other financing solution, including bank lines of credit, private equity funding, or SBA loans. Since it is focused on specific asset classes, it is not uncommon to see a business use an asset-based lender for an accounts receivable and inventory loan while the SBA finances a piece of equipment or real estate. Factors also can work with banks to eliminate concentration concerns or reduce the banks credit exposure.
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