How to get money to grow your business

Let’s look at popular sources for funding your business and see what the speed and requirements are for each.

Venture Capital

Description: Venture capitalists invest in a startups and growth companies. In order to attract VC money you need a strong team, a growth plan and a clear path for them to their cash out or get their investment back with returns. They typically won’t fund you for less than $5 million.

Credit Requirements: The better the credit the higher probability you can get this, but it’s based more on the team and your products and services rather than your credit.

Average Time Needed to Get Money: 6 months

Bank Line of Credit

Description: Banks will often set up a line of credit that will allow you to borrow and payback the money as needed. Great for funding needed inventory, funding invoices, etc.

Banks will also loan money for things like capital equipment where the equipment itself serves as collateral for the loan.

Credit Requirements: Must have great credit. Must be in business two years or more.

Average Time Needed to Get Money: If you have a great relationship with your banker it can only take a week or two.

Invoice Factoring

Description: Invoice factoring is not debt, it is simply accelerating receipt of money that is already rightfully yours, as you have already delivered the product or service to your customer, and are waiting to get paid.

Can work well with accounts receivable. Must have delivered products or service.

Can be from $10,000 / month and up.

Credit Requirements: Doesn’t matter about your credit, but your customer’s credit must be good.

Average Time Needed to Get Money: 1 to 2 days from the time you apply and are approved until you have access to the money

Angel Investors

Description: Angel investors vary all off the map as far as what their minimum investment is.

Typical range of investment: $10,000 to $500,000

Credit Requirements: This is going to be much more based on the team and the future rather than current profitability or credit scores. They will generally insist you are heavily invested yourself

Average Time Needed to Get Money: 2-4 months

Crowdfunding

Description: There are 2 kinds of crowdfunding: Equity and Debt.

With Equity crowdfunding you are actually selling part of your business to the investors. This generally means you have to give up more ownership of your company than later stages is in the early stage of your business, it is not worth much? Also when you have outside investors owning part of your business, this will put a burden on your time, since you will need to keep the investors up to date on what is happening with their money and your business.

With Debt crowdfunding, not only will you have to pay the company promoting your deal a 10% fee, but you will also have to pay the Debt providers a handsome return on their money, probably over 15% per year.

Credit Requirements: Depends most on the sizzle of your product and the video presentation you use to raise the funds.

Average Time Needed to Get Money: Two to four months

Family and Friends

Description: Approaching your family and friends for money has both pluses and minuses.

The pluses are:

  • They already know you

  • They can be quick to fund

  • Then can be patient when it comes to paying back the money

The minuses are:

  • They already know you…and may not trust you because of past behavior

  • They can put all sorts of non-financial restrictions on you that you wouldn’t feel comfortable with

  • If things don’t go well it most often causes a family rift, makes family get-togethers very awkward and can lead to years of silence between family members. If one of the other relatives steps in to help persuade the other relative with money, it can cause problems with that relationship as well.

  • The same thing can happen with friends. I’ve seen so many cases of great friends no longer talking to each other if one friend can’t pay the money back.

Credit Requirements: Depends most on your track record within the family and specifically with that one in particular. In the friends category, your past track record will be the key to a yes or no.

Average Time Needed to Get Money: Couple of weeks to a few months.

Conclusion

As you can see, the better your company’s background, products, and profitability, the easier it is to get funding. But if have bad credit, and have been in business for less than 2 years, but your customers have good credit, getting invoice financing also known as invoice factoring, can work as an alternative financing solution for your business. Best of all it doesn’t affect your credit since it is not a loan and not an obligation you have to pay back…your customers pay the factors directly so there is nothing for you to payback.

Free Invoice Factoring Report

Factoring is used by:

  • Small companies
  • Medium companies
  • Large companies including many Fortune 500 companies
  • Old companies
  • New companies
  • Companies with bad credit
  • Companies with good credit
  • Companies that sell to other businesses
  • But not companies that sell directly to consumers

To get your free copy of the Invoice Factoring Report where you will learn all if this is a good option for you including:

  • How does invoice fatoring work
  • When to use factoring
  • Benefits of factoring
  • Who uses factors
  • What are the requirements to use factoring in your business

To get your copy of the Invoice Factoring Report, simply fill out the form below.

About the Author

Philip Campbell is the founder of Small Biz Funding US, a small business financing and consulting company, whose mission is to assist small business owners to access the financing they need to grow their companies.

Philip has been a small business owner himself for 19 years, having founded and developed 4 different small companies, and therefore has hands on experience in regard to the challenges small business owners face in growing their companies, especially securing adequate financing.

With his training and experience, Philip is able to analyze and diagnose the financial standing of a business, and provide guidance on the best ways to finance the company.

You can contact Philip directly at 214-434-1141 or email at philip@smallbizfundingUS.com.

Construction Financing For Sub-Contractors

A construction Sub-Contractor is very happy when he is awarded a larger than usual contract on a Commercial project.

However many times he is not aware of the working capital needed to get the job done.

Construction starts on Day #1 at which time the Sub-Contractor must already have the material supplies needed stored on site. For this he must have Supplier credit, usually 30 days, if he has a good track record. Then the Sub-Contractor must provide the Labor on the job for the following 25 days (Day#25), at which time the Sub- must submit to General Contractor a Pay Application, for materials supplied and work accomplished for the initial 30 days on the job. The GC validates and consolidates all the Pay Applications from all the Subs, and submits for payment from the project Owner (Day#30). The Owner usually pays the GC after another 30 days have past, at which time the GC can pay the Sub (Day#60).

So in summary, the Sub must have the sufficient working capital to provide Labor and Materials on the project for 60 days, before he sees the first payment. The materials Supplier will usually expect to be paid in 30 days, and the Workers on the job either weekly or biweekly.

With factoring the Sub can cut this waiting period of 60 days in half. After the Pay Application is validated by the GC, the Sub can receive an advance from the factoring company, so as to pay the materials Suppliers and continue to pay the Workers wages on the job.

Why does the bank turn you down for a loan?

When you apply for a loan for your business at the bank, they analyze your past performance to make a credit decision.

First they consider the Owner’s Credit score and report. If the Score is below their established threshold, this will usually disqualify you. Then they will ask how long you have been in business? If for less than 2 years, they will consider you a Start-Up, and you will be disqualified. If your business has experienced losses at any time over the last 3 years, again you will be disqualified. All these factors, and others the banks use, are considerations which are looking to the past in order to attempt to predict your future performance.

With factoring you can overcome these constraints, as we look more to the credit quality of your customers to make a decision. This is opposite to the banks’ strategy, as it is forward looking.

Factoring vs. Debt

I’m sure you’ve heard of people and businesses that get into financial trouble due to excessive debt. For individuals it is usually with their credit cards. For companies it is with a bank loan or line of credit.

With factoring you can avoid these pitfalls, because factoring is not debt, it is simply accelerating receipt of money that is already rightfully yours, as you have already delivered the product or service to your customer, and are waiting to get paid.

Some factoring companies even provide “non-recourse” factoring, meaning they advance you the cash, and then take on the “risk of non-payment” on the part of your customer, therefore releasing you of the responsibility to collect.

Bank fees

In this low interest rate environment, banks need to charge more fees for their services because they make very little money on loans. If your business is tight on cash, probably you are incurring frequent overdraft and other fees.
I had a client that was being charged over $1,000 monthly in fees by the bank, a lot more than the factoring fees once we started funding their invoices. By improving your cash flow with factoring, you can avoid many of the bank fees.

https://www.forbes.com/sites/allbusiness/2016/04/26/slow-paying-clients-7-tips-to-help-you-get-paid-faster/#5bfc27323979

the “Cost” of NOT factoring

Here’s an example to demonstrate how focusing on the cost can lead to lost opportunities.

Let’s say you have a business with Sales of $100,000, and a Gross Margin of 30%, or $30,000, and you have an opportunity to grow your Sales to $200,000, high growth of 100% If you can fund this growth with your own working capital, you will now generate $60,000 in Gross Margin.

However many times you internally generated funds are not sufficient to fund such high growth. If you sell to other businesses and have B2B accounts receivable, many times factoring can provide the funding you need to grow at a high rate.

Let’s say the Cost of factoring the additional $100,000 in Sales is 5%, or $5,000. So now at the higher level of Sales of $200,000 your Gross Margin will be $55,000, that is $60,000 less the $5,000 for factoring.

Now I ask you: Which do you prefer? a Gross Margin of $30,000 or $55,000? of course the answer is obvious, but the point of the message is that sometimes you focus on the $5,000 cost, and loose the opportunity of making and additional $25,000 in Gross Margin.