To understand the niche market of small business financing you must first gain an appreciation for flexible factoring.
Flexible factoring starts with defining the basic concept. Credit card factoring is similar to a merchant cash advance. In fact, the two terms are often used interchangeably. Both of these financial options are a form of credit card receivable funding. The ultimate goal of this type of factoring is to offer business owners a solid and simple way to regain control of their financial direction.
Supplying Everyone with a Confident Financial Future
For the majority of businesses that we work with at Advance Funds Network (AFN), regaining control feels like a far-off goal. Business owners in every company, no matter the size, desire to stand confidently at the helm of their venture and set the course for sustainability. It has become increasingly difficult for small to medium-sized businesses to survive in this economy long enough to reach that goal. The current financial environment does not leave much room for traditional financiers to take a well-deserved gamble on the “little guy.” Banks and traditional lenders are risk-adverse by nature. They weigh their investment based on the potential for success versus the unfortunate statistical likelihood of failure. SMB’s usually end up on the latter end of that scale.
While banks may see a company with an uncertain future as doomed to fail, we at AFN, know that without sufficient funding, lenders have left failure as the only option on the table. Credit card factoring opens up a goal-oriented avenue that ultimately leads to the sustainability equally enjoyed by larger cash-flush companies.
Additional Working Capital with the Accepted Uncertainty
Two of the most frequently used options on the table are the aforementioned merchant cash advance/ credit card factoring and Traditional Factoring. In a nutshell, one method relies on the present, the other on the future.
A merchant cash advance differs from traditional factoring because it relies on future debit and credit card sales. Factoring, on the other hand, is typically based on sales that a company has made, but not yet collected. An advance gives you the benefit of the doubt, whereas factoring gives you the benefit without any doubt. Credit Card factoring is appealing to many small businesses because they get the same benefits of traditional factoring without the sales constraints, since the money they are borrowing against is yet to be earned.
There are two ways businesses can access the funds:
1. They can choose to access the funds in an upfront lump sum.
2. They can choose to stagger the withdrawal so that they receive the funds in multiple installments.
We encourage business owners to develop both a financial plan and an updated business plan before using factoring. Resources to take these steps are also provided through the Small Business Association (SBA) and other local community programs. That way, they keep the primary goal of financial health and profitable sustainability in mind.
That money has numerous applications in a small business environment. Businesses have used the funding to:
- Purchase equipment
- Pay taxes
- Open a new location
These unrestricted funds have given many of our clients an infusion of working capital when they needed it most.
Cut from a Different Cloth
Small business financing may be a billion dollar business now, with companies providing in excess of $60 million a month in funding in 2013, but it wasn’t like that when AFN first opened its doors.
In the early 2000’s, our company was one of a few in a very small class of SMB factors. Our competitors saw us as outsiders looking wistfully in at the factoring world. To them, we were at the bottom of the financing barrel and our novice-level niche was pretty small back then. The deals we were making may not have turned many heads, but we knew we were on to something special.
Our “something special” turned out to be the ground floor of financial recovery for small and medium-sized businesses nationwide. What makes our company different? We’ve succeeded, but never deviated, from our original goal: to help businesses who are short on capital access the necessary resources to continue to develop their businesses.
Our model is simple. It consists of five core ideas:
- We will take all businesses that do not fit the typical factoring model and find a place for them where other companies cannot. Whether that means setting up a financial structure that is paid off automatically or creating a payment plan that is collateral-free, our clients won’t get kicked to the curb or leave empty handed. In fact, we pay out referral fees to brokers and other factors who help locate businesses in need. We can also take second lien position on receivables behind a factor.
- We will grow these businesses to a sustainable point and then refer them back to larger factors. We’ve been asked many times why we do business this way. All roads circle back to flexibility. The reason we are able to stay flexible with the funding we offer is because using this strategy keeps us from becoming too specialized. Once a company reaches a certain stage in its development, it’s usually beneficial to pursue a specialized factor for their respective industry. It is better to pass the developed company onto a specialized Factor so that they can truly leverage that industry’s cash flow with a factor that understands them best.
- We do not require assets, invoices, or personal guarantees. Our focus is on leveraging cash flow, not assets. We allow our funding to bridge the liquidity gap.
- We show how our program works so that businesses that come to us for funding have a very clear idea of how the process works, including their timetable for approval. So much of small business financing is uncertain; we believe the credit card factoring and small loan (under $1,000,000) process shouldn’t be.
- Client service is paramount to creating repeat customers. We are in a service business. Our model works because we work exclusively with small and medium-sized businesses. We know who our customers are and what it takes to keep them.
Credit card factoring has been a growing industry ever since the first interaction in the financing world. It has become the signature and revolutionary way for main street businesses to access capital on a quick and as-needed basis. As this area of funding grows, one thing has been made undeniably clear: credit card factoring creates opportunity for SMB’s.
AFN will continue to offer premier factoring services so that when opportunity knocks, small businesses nationwide can throw their doors open and answer.