Small Business Financing Alternatives

Every year, people take the plunge and go into business for themselves. They may finance it through any combination of their life?s savings, funding from some investors, and/or some form of small business financing, among other means. For a lucky percentage of those, their business may take off and do well. While this is a positive initial outcome, this growth of business may deplete the initial pool of funds that the owner may have started off with. With bank loans and/or family investing most likely either already tapped or not available, small business owners must come up with a creative solution to keep the cash flow coming, especially if they deal in producing a product. Luckily, there are two forms of alternative financing to meet that need.

Invoice Financing

Many businesses dealing in goods that they produce tend to fall into a common conundrum. Frequently, their produced goods are sold to clients on terms. This means that the client is invoiced for the goods, and are provided with a set time to pay for the goods. This practice is quite common. However, the business needs the money sooner, rather than later, to be able to produce more product. How does a small business owner weather that gap?

Companies exist to purchase invoices from small businesses to meet the interim expenses between when they ship out the product and when they get paid for it. The terms usually vary, but the financing company advances the small business much of the invoice value; then, upon payment, the business receives the rest of the invoice, less financing charges. This can help a small business meet its obligations while waiting for payment. This form of alternative financing may help to expand a growing business.

Purchase Order Financing?

For small businesses involved in resale, or whose goods are manufactured by a third party, purchase order financing can be an effective solution to the temporary cash crunch. When the business takes an order from a client, yet lacks the funds to fulfill it on its own, a purchase order financing company can pay for the supplier costs upfront. Upon receipt of goods and payment by the client, the transaction is complete. Unfortunately, this method of alternative financing is typically not available to firms that produce their goods in house.

Bridging the Gap?

For small businesses involved in the production or resale of goods, these types of alternative financing may prove to be an invaluable resource to bridge the asset gap between producing the product and receiving payment. These positive effects may, in turn, help the business grow at an even greater pace.

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