Starting a small business is a gamble on many levels. If you survived the start-up phase, you passed “level one.” By the time businesses get to this point, certain questions usually enter the conversation. One question we hear frequently is: why is small business factoring a good idea so soon after establishing my company? This article will uncover the answer to that question.
Lending in Good Faith
Good faith lending is probably a relatively foreign concept at this stage of the game. One of the biggest things you need to realize is a difference between your personal and your business credit history.
Before you started your own business, you were told not to have surplus lines of credit available to you at one time. This is still true from a personal standpoint. Carrying multiple balances looks bad on a personal credit report; however, your business history is a different story.
We want to make it very clear from the get-go: we are not advocating that business owners retain poor credit. What we are pointing out is that the life of a business functions under a different set of rules than the life of an individual.
For instance, nearly everyone has had to survive during lean financial times. When those circumstances hit, you most likely cutback on unnecessary spending to conserve resources. Realistically, this is not an option in business. No matter what your business financial circumstances may be, you are still required to cover the expenses necessary to keep the doors open. This scenario is exactly why small business factoring was created.
The gap between assets and working capital is almost always under construction, especially in the early days of business operations. It becomes a balancing act between revenue and liquidity. Typically, businesses rely on at least two credit sources so that access to cash flow does not interrupt normal operations. From an outsider’s perspective, this can look somewhat dangerous. After all, you’ve managed to keep your doors open for the first six months, but at this rate, you are unsure about the next six. Is this really the time to borrow against future revenue? The answer is yes, if you understand the value of factoring.
The Value Quotient
Receivable factoring is based on your existing transaction history. Your sales revenue receipts stand in the gap between your assets and working capital.
Eligibility for borrowing against future income is based on how much revenue you generated in the last quarter. You can access the funds through cash flow injections during the agreement period.
Factoring is a means to an end. It keeps you from relying on a single source of credit for the life of your business. It also ensures that you do not fall into too much business debt. Automatic repayment will get you on the road to sustainability by a safer and more effective route.
For more information on how this unique small business option can help you prosper, contact Advance Funds Network today.