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Small Business Loans - Merchant Loans And Alternatives
Perhaps one of the most common ways to start your own business is to become a merchant. However, being one is no walk in the park. There are several things that you need to pay attention to, especially the liquidity of your business. In many cases, being short of capital or not having ready access to additional capital is what keeps merchants from succeeding. Having ready access to additional capital can either mean you are extremely rich or you simply know the different ways for you to have the needed funding for your small business. It is quite obvious that you are better off with the latter because no matter how much money you have today, there will come a point that you might resort to different kinds of merchant loans.
There are at least two kinds of financing options that you can take to fund your small business. Merchant loans or small business loans are perhaps the most popular and can generally allow you to borrow a large sum of money. In this way, you can start your own business or buy out one. The money you have borrowed can also be used to refinance your other business debts or it can be used to acquire other types of capital, like inventory or equipment or commercial real estate.
Other than small business loans, you can also opt to get a business cash advance. This is similar to merchant loans but generally does not require upfront fees. It also has a simpler application process than a traditional business loan and typically does not send reports to credit agencies.
The good thing about a business cash advance is it does not have fixed collection time and repayment schedules are more lenient. The funds you will be borrowing are unsecured money so there is no need to worry about collateral. Nor does it require applicants to have good business credit scores.
While it is quite true that SBA loans can generally satisfy your funding needs, it is not always easy to acquire additional capital through this method. This is why alternatives exist and it is quite a big help to turn your attention to these other options. While unsecured alternatives usually cover for the higher risk through charging higher interest rates, they are still worth resorting to because they can very well save your business from potential demise. Learn more about merchant loans and other funding alternatives today!
Merchant Cash Advance VS Small Business Loan
Together with the surge of mushrooming small businesses was the rise in the need for funding. To answer this need, financial services have been offered by various lending companies and financial institutions. The best thing about the huge competition on the side of these lenders is that they are continually devising ways to make things better and better for the entrepreneurs, coming up with innovative solutions. Two financial services that this article tries to look into are the small business loan versus the merchant cash advance.
In the past, traditional small business loans were the answer to the need for funds of an entrepreneur. Today, many forms of funding have evolved into more sophisticated models that have integrated ease and speed in acquisition. A merchant cash advance is one of these innovations in financial services. Let us take a look into the features of each to be able to distinguish which money source is right for our entrepreneurial and financial needs.
Among the common requirements posed when applying for a small business loan is that the possible borrower must have a good credit history and that the business should have been operating for a certain number of years. With most banks, you may have to put up your physical assets as security in order to receive the needed small business loan. The majority of application for such traditional means of funding has a higher probability to get declined. In the application process, the submission of paperwork alone could take from 1-4 weeks. If you have a good credit standing and are approved of a small business loan, it could take somewhere from 4-8 weeks before your money is released. Repayment terms are done on a fixed monthly basis and failure to comply with this may result to default of the small business loan.
Merchant cash advance, on the other hand, boasts of an incredible 90% and higher rate of approval as the lending company evaluates not the credit history of the borrower but ability of the business to procure future credit card sales. With lesser requirements to meet, the application process is a lot faster than that with getting a small business loan and within an average of 24 to 72 hours the applicant will already know the response of the lending company. Once approved, funds can be made available in less than seven days. Unlike small business loans, repayment for merchant cash advance is taken by percentage of future credit card sales until the borrowed amount is fully paid.
By comparison, the merchant cash advance obviously outshines the small business cash advance in both ease and speed in acquisition.
The author of this article Tod Lehman, The "Merchant Advance Guy", is an expert on business financing options [http://www.advances4merchants.com/]. To get more information about obtaining a business cash advance visit www.Advances4Merchants.com [http://www.advances4merchants.com/]
Small Business Loan Update - Stimulus Bill Helps Bailout Businesses If They Cannot Pay Loans
As we continue to sift dutifully through the over 1,000 pages of the stimulus bill (American Recovery and Reinvestment Act of 2009), there is one provision that is not getting much attention, but could be very helpful to small businesses. If you are a small business and have received an SBA loan from your local banker, but are having trouble making payments, you can get a "stabilization loan". That's right; finally some bailout money goes into the hands of the small business owner, instead of going down the proverbial deep hole of the stock market or large banks. But don't get too excited. It is limited to very specific instances and is not available for vast majority of business owners.
There are some news articles that boldly claim the SBA will now provide relief if you have an existing business loan and are having trouble making the payments. This is not a true statement and needs to be clarified. As seen in more detail in this article, this is wrong because it applies to troubled loans made in the future, not existing ones.
Here is how it works. Assume you were one of the lucky few that find a bank to make a SBA loan. You proceed on your merry way but run into tough economic times and find it hard to repay. Remember these are not conventional loans but loans from an SBA licensed lender that are guaranteed for default by the U.S. government through the SBA (depending upon the loan, between 50% and 90%). Under the new stimulus bill, the SBA might come to your rescue. You will be able to get a new loan which will pay-off the existing balance on extremely favorable terms, buying more time to revitalize your business and get back in the saddle. Sound too good to be true? Well, you be the judge. Here are some of the features:
1. Does not apply to SBA loans taken out before the stimulus bill. As to non-SBA loans, they can be before or after the bill's enactment.
2. Does it apply to SBA guaranteed loans or non-SBA conventional loans as well? We don't know for sure. This statute simply says it applies to a "small business concern that meets the eligibility standards and section 7(a) of the Small Business Act" (Section 506 (c) of the new Act). That contains pages and pages of requirements which could apply to both types of loans. Based on some of the preliminary reports from the SBA, it appears it applies to both SBA and non-SBA loans.
3. These monies are subject to availability in the funding of Congress. Some think the way we are going with our Federal bailout, we are going be out of money before the economy we are trying to save.
4. You don't get these monies unless you are a viable business. Boy, you can drive a truck through that phrase. Our friends at the SBA will determine if you are "viable" (imagine how inferior you will be when you have to tell your friends your business was determined by the Federal government to be "non-viable" and on life support).
5. You have to be suffering "immediate financial hardship". So much for holding out making payments because you'd rather use the money for other expansion needs. How many months you have to be delinquent, or how close your foot is to the banana peel of complete business failure, is anyone's guess.
6. It is not certain, and commentators disagree, as to whether the Federal government through the SBA will make the loan from taxpayers' dollars or by private SBA licensed banks. In my opinion it is the latter. It carries a 100% SBA guarantee and I would make no sense if the government itself was making the loan.
7. The loan cannot exceed $35,000. Presumably the new loan will be "taking out" or refinancing the entire balance on the old one. So if you had a $100,000 loan that you have been paying on time for several years but now have a balance of $35,000 and are in trouble, boy do we have a program for you. Or you might have a smaller $15,000 loan and after a short time need help. The law does not say you have to wait any particular period of time so I guess you could be in default after the first couple of months.
8. You can use it to make up no more than six months of monthly delinquencies.
9. The loan will be for a maximum term of five years.
10. The borrower will pay absolutely no interest for the duration of the loan. Interest can be charged, but it will be subsidized by the Federal government.
11. Here's the great part. If you get one of these loans, you don't have to make any payments for the first year.
12. There are absolutely no upfront fees allowed. Getting such a loan is 100% free (of course you have to pay principal and interest after the one year moratorium).
13. The SBA will decide whether or not collateral is required. In other words, if you have to put liens on your property or residence. My guess is they will lax as to this requirement.
14. You can get these loans until September 30, 2010.
15. Because this is emergency legislation, within 15 days after signing the bill, the SBA has to come up with regulations.
Here is a summary of the actual legislative language if you are having trouble getting to sleep:
SEC. 506. BUSINESS STABILIZATION PROGRAM. (a) IN GENERAL- Subject to the availability of appropriations, the Administrator of the Small Business Administration shall carry out a program to provide loans on a deferred basis to viable (as such term is determined pursuant to regulation by the Administrator of the Small Business Administration) small business concerns that have a qualifying small business loan and are experiencing immediate financial hardship.
(b) ELIGIBLE BORROWER- A small business concern as defined under section 3 of the Small Business Act (15 U.S.C. 632).
(c) QUALIFYING SMALL BUSINESS LOAN- A loan made to a small business concern that meets the eligibility standards in section 7(a) of the Small Business Act (15 U.S.C. 636(a)) but shall not include loans guarantees (or loan guarantee commitments made) by the Administrator prior to the date of enactment of this Act.
(d) LOAN SIZE- Loans guaranteed under this section may not exceed $35,000.
(e) PURPOSE- Loans guaranteed under this program shall be used to make periodic payment of principal and interest, either in full or in part, on an existing qualifying small business loan for a period of time not to exceed 6 months.
(f) LOAN TERMS- Loans made under this section shall:
(1) carry a 100 percent guaranty; and
(2) have interest fully subsidized for the period of repayment.
(g) REPAYMENT- Repayment for loans made under this section shall--
(1) be amortized over a period of time not to exceed 5 years; and
(2) not begin until 12 months after the final disbursement of funds is made.
(h) COLLATERAL- The Administrator of the Small Business Administration may accept any available collateral, including subordinated liens, to secure loans made under this section.
(i) FEES- The Administrator of the Small Business Administration is prohibited from charging any processing fees, origination fees, application fees, points, brokerage fees, bonus points, prepayment penalties, and other fees that could be charged to a loan applicant for loans under this section.
(j) SUNSET- The Administrator of the Small Business Administration shall not issue loan guarantees under this section after September 30, 2010.
(k) EMERGENCY RULEMAKING AUTHORITY- The Administrator of the Small Business Administration shall issue regulations under this section within 15 days after the date of enactment of this section. The notice requirements of section 553(b) of title 5, United States Code shall not apply to the promulgation of such regulations.
The real question is whether a private bank will loan under this program. Unfortunately, few will do so because the statute very clearly states that no fees whatsoever can be charged, and how can a bank make any money if they loan under those circumstances. Sure, they might make money in the secondary market, but that is dried up, so they basically are asked to make a loan out of the goodness of their heart. On a other hand, it carries a first ever 100% government guarantee so the bank's know they will be receiving interest and will have no possibility of losing a single dime. Maybe this will work after all.
But there is something else that would be of interest to a bank. In a way, this is a form of Federal bailout going directly to small community banks. They have on their books loans that are in default and they could easily jump at the chance of being able to bail them out with this program. Especially if they had not been the recipients of the first TARP monies. Contrary to public sentiment, most of them did not receive any money. But again, this might not apply to that community bank. Since they typically package and sell their loans within three to six months, it probably wouldn't even be in default at that point. It would be in the hands of the secondary market investor.
So is this good or bad for small businesses? Frankly, it's good to see that some bailout money is working its way toward small businesses, but most of them would rather have a loan in the first place, as opposed help when in default. Unfortunately, this will have a limited application.
Wouldn't it be better if we simply expanded our small business programs so more businesses could get loans? How about the SBA creating a secondary market for small business loans? I have a novel idea: for the moment forget about defaults, and concentrate on making business loans available to start-ups or existing businesses wanting to expand.
How about having a program that can pay off high interest credit card balances? There is hardly a business out there that has not been financing themselves lately through credit cards, simply because banks are not making loans. It is not unusual for people to have $50,000 plus on their credit cards, just to stay afloat. Talk about saving high interest. You can imagine how much cash flow this would give a small business.
We should applaud Congress for doing their best under short notice to come up with this plan. Sure this is a form of welcome bailout for small businesses, but I believe it misses the mark as to the majority of the 27 million business owners that are simply looking for a loan they can repay, as opposed to a handout.
Sue Malone is a small business advocate and founder of Strategies For Small Business, a company devoted to providing SBA Loans for small business owners, whether as start-ups or for the expansion needs of existing businesses. For six years she has been the nations #1 provider of SBA Community Express Loans, having funded over 25,000 businesses in all 50 states. For a free loan consultation or for more information on the programs, visit our website at: http://www.StrategiesForSmallBusiness.com Or call (925) 899-8449.
�2008 Strategies For Small Business. All rights reserved.
Free help by SBA for Small Business Loans
Why should anyone be interested in helping you for free?
The government benefits if it gives small business start up loans and that is why it helps.
o Statistics show that small businesses number more than the big businesses.
o Small businesses employ more than 50 percent of the work force.
o Small businesses contribute to more than 50 percent of the nation's GDP-Gross Domestic Product.
o Small businesses are the principal source of new jobs.
Starting a small business or expanding your small business is not easy. Expert guidance and help is given to you for free by SBA. The US Small Business Administration was established in 1953 and has business offices in every state. SBA works with thousands of lending, educational and training institutions nationwide. It does not provide grants but offers counseling. Government small business loans are offered to many entrepreneurs. Look up the web sites of the state economic development agencies to know if it is available in your state.
SBA is only a guarantor of loans offered by banks and other private financial institutions. The lending institutions that agree to terms of the SBA provide loans to small businesses through SBA. In case of inability of repayment of loan within the stipulated time; the SBA pays the lender the agreed upon guarantee amount, and the borrower has to pay the SBA the entire amount.
Can the SBA help you?
Small business is one that is independently owned and operated and is not dominant in its field of operation. SBA has regulations to determine whether your business qualifies as a small business. You could look up the SBA website or federal government regulations to find out if your small business startup loan or small business loan for expansion qualifies. Your business has qualified then the next question that any lender would ask you, is: Do you have a business plan?
Most lenders would require a detailed description of the business you are going to start up or expand. Look up the SBA site http://www.sba.gov/starting_business/index.html for planning options and counseling. The many things that SBA helps you is
o Writing a business plan
o Getting the loan
o Licenses and Laws
o Patents and copyrights
o Selling to government and abroad
o Hiring employees
o Buying the right equipment.
Notable among it various programs are Small business loans for minorities, Small business loans for Women, Small business loans for veterans and young entrepreneurs. The various small business loan programs offered by SBA are.
Basic 7(a) Loan Guaranty
This is the primary business loan program. It is offered to those who do not qualify for loans through the normal lending channels. The terms offered by SBA are more flexible. Valid loans are those where the proceeds of the loan are used for sound business purposes. The maturity is 10 to 25 years depending upon working capital and fixed assets. http://www.sba.gov/financing/sbaloan/7a.htm
Low income borrowers, disabled business owners, exporters, rural and specialized industries are the target for this program. Bad credit small business loans do not fall in this category. The applicant has a credit merit then it is easier to secure the loan. http://www.sba.gov/financing/sbaloan/prequalification.htm
Certified Development Company (CDC), a 504 Loan Program
This is a variant of the Basic 7(a) loan to obtain real estate or equipment for expansion or modernization. http://www.sba.gov/financing/sbaloan/cdc504.htm
Micro Loan, a 7(m) Loan Program
This is available in selected locations in most states. The SBA stand as guarantor to organizations that provided the loans, technical assistance and management for small scale financing. Not-for-profit child-care centers can also avail these loans for working capital or purchase of inventory or supplies. http://www.sba.gov/financing/sbaloan/microloans.htm
Home owners, Property owners in disaster areas qualify for this loan program. Term of the loan is 30 year and the rate of interest is below 8 percent for those who can obtain credit elsewhere and below 4 percent for those who cannot obtain credit elsewhere. http://www.sba.gov/disaster_recov/loaninfo/property.html
Smeloancenter.com is your resource for loans and extensive information on small business enterprises. It deals with Small business startup loans [http://www.smeloancenter.com] , small business loans for women, etc…It your first stop for info on various types of small business loans.
Business Owners Are Finding Better Ways To Fund Their Business With Working Capital Cash Flow!
Today's business financing environment is still not favorable to the business owner in getting approved for small business loans for working capital with no business assets and not much profit. Business working capital funding is a difficult achievement in this present economic condition of our country. As we all know, business short term funding allows business owners to obtain business funding for their business to survive through any financial crunch that comes up for alternative financing. This article will discuss the best tips for getting fast, easy business funding for working capital for critical daily cash flow needed by the business owner.
Nationwide business loans are extremely difficult to get approved for the business owner these days. Credit unions and traditional banks do not offer small business bank statement funding and the number of business loan applications being approved has shortened up further and will continue to do so in the future. Along with the unstable economic conditions, the majority of banks and credit institutions have ceased lending to small businesses altogether. If you are an entrepreneur then it may be really difficult to find out that your small business is simply a number to these banks. If you need business to business quick funding for your small business than you need to step out and take action! This will result in the small business owners reaching out to a lender who offers fast and easy working capital funds which are needed for the owner. Business bank statement funding is valid for any business owner that needs business working capital for daily cash flow! Credit unions and financial institutions have ceased lending money for the small business owner, most of the businesses find it really difficult to get working capital approval. In such situation, business working capital funds provide easy and quick working capital for small businesses as per their requirement. These funds are known for their quick processing, easy payment options and flexible conditions and easy credit requirements.
Working Capital is required and necessary for every small business owner to have operating cash flow for day to day operations. With a small business cash advance, quick short-term funding is what makes sense to continue and stabilize a small business operation. Businesses need funds rapidly for expanding, competing and succeeding in their own business. It's important that your customer ought to know that you are offering quality services or product without any hesitation due to lack of funds for a project. Small business funding is the most useful and reliable option for your cash flow requirements and requires a pristine personal credit history of your business and the owner and having cash on hand to support the bank loan.
The first impression of your business from your customers should be to compel them to choose your services or products because your company can make fast financial decisions and be the best company out there. Expanding your business with a small business credit card advance for new and bigger equipment that your business could never afford in the past is now doable with confidence that you can receive the funding to buy that equipment. This will in turn give the confidence to your customer that your company will get the job done and you do not have cash flow problems that will interfere with their success. Just think you can buy equipment with a fast working capital funding and payoff the equipment in a short term period and then you own that equipment free and clear once it is paid off. You can keep doing this over and over and build a fleet which you own free and clear. Now you be a small business with assets. This is a way to improve your financial status quickly and to build your small business.
The key rule of a small business is to generate a healthy gross profit and work environment to get maximum output from your employees. Remember that it is not just about your customer who would appreciate clean, state-of-art, professional and ready-to-serve products and or services; but your employees as well. Quick working capital with small business loans funding can provide the capital required for prime quality tools and the overall employee turnover can be reduced along with higher efficiency and morale. Small businesses can get quick working capital funding even with a poor credit history including a bankruptcy or tax lien or judgment.
A promising business with significant amount of bank deposits and stability will get fast bank statement funding inside of 72 hours. The capability of choosing a repayment schedule which is for a short term is an added advantage of these cash advance funding.
Business cash funding has made it simpler to receive fast funds without much hassle even if the small business owner has been turned down by their local bank. However it is important to do proper research about the private lender before applying for these types of short term funds. The internet is the foremost option to identify a reliable and responsible lenders for business cash advances, checking with the BBB for any records that may indicate any complaints filed against the lender. There are many online business cash advance lenders so it can easily be really hard to differentiate reliable ones to an online scam. Also offering the owner too much working capital at one time for that particular small business may actually hurt the repayment of the funding causing a cash flow problem for the business owner. The small business owner must find a lender who will watch out for the bottom line of the business owner.
Working capital cash funds can help your business in a financial crunch and make it easy to handle any future financial troubles. Business bank statement funding is fast and easy business funding that has opened the flood gates for small businesses to get easy working capital funding. With easy repayment options, 100 percent funding approval and quick processing of business cash funding are some of the most important benefit of these small business programs. Over the past few years, small businesses have experienced a global downturn in the economy and funding options have further been cut short for business invoice factoring. A private lender who can provide the small business with working capital can replace the down trend of factoring.
Business bank statement funding loans provide an easy and fast funding method for all types of businesses. Small scale businesses do not enjoy great terms with banks and credit unions unlike major brands. They need money for different reasons including further expansion, installing new equipment, inventory requirement, working capital and other similar requirements. Business bank statement cash funding depends on the previous track record of the business bank deposits to show that business is receiving enough bank deposits to pay back the advance and that the small business ending balance can support the repayment of the funding!
Receiving a cash working capital funding is easily approved and does not require long processing time before giving an approval and receiving the working capital cash. All the small business owner needs to do is to find reliable working capital cash company and by seeking a private lender is the best way to find trustworthy private lender. A lenders goal is to help small and mid-sized business owners by providing a simple and convenient alternative to a traditional business loans. Business Cash working capital provides a real solution for business owners faced with the reality of disappearing sources of working capital. Given the current capital markets and lending environment, traditional sources of capital, such as bank loans, home equity loans, and credit card loans, are no longer options for many businesses with hassle free solution for millions of small business owners that need access to immediate working capital and may not qualify for a business loan.
A private lender offers several different programs to fit your specific needs. Their business cash funding program converts your future credit card receivables into immediate cash that you can use for any business purpose. Repayments are based on a small fixed percentage of your future credit card receivables. Payments are automatically applied to your remaining balance until the balance is satisfied. Unlike a business loan, our service is aligned with the success of your business: repayments are linked to your credit card receivables; the lender does not get paid until you get paid, thus helping manage the cash flow of your business, especially during slower months or seasonal months. This will benefit many small companies because the repayment is in line with their natural flow of revenue.
The private lenders mission is to help little and average sized entrepreneurs by giving a basic and helpful alternative to customary business credit. Private investor's business cash programs give a true answer for entrepreneurs confronted with the truth of depleting of working capital cash. Given the current capital markets and the bank lending environment, sources of money, for example, bank loans, home equity loans and credit charge cards, are no more alternatives for small business owners. A private lender with a bank statement program gives the business the flexible, hassle- free solution and bother- free solution. This is huge for a number of entrepreneurs that need access to quick working capital and may not fit the bill for fast funding. A private lender offers distinctive funding programs to fit the particular small business needs. A private lender with a small business bank statement program allows the business future bank deposits to be used for working capital cash that the small business owner can use for any business reason.
Reimbursements are dependent upon altered rates of your future credit card receivables. Not all lenders offer a business cash program which is adjusted to fit the small business needs: reimbursements are joined to your credit card receivables; if your receipts are low than less of a repayment is remitted. This will help the business owner deal with the proper money stream of their business, particularly throughout slower months.
Business bank statement cash programs are valid for anybody who is a business owner and needs working capital! Financial capital is required for every requirement of small businesses. Let it be anything starting with expanding, competing and succeeding in business. It's important that your customer ought to know that you are offering quality services and are the most useful option for their requirements. But that requires a pristine image of your business which starts with professional marketing practices. First impression of your business should compel the customer to choose your services from your professional environment and best equipment for the job. Modify the class of clientele with new and bigger equipment that your business could never afford in past.
The key rule of business is to generate a healthy work environment and get maximum output from your employees. Remember that it is not just about your customer who would appreciate clean, state-of-art, professional and ready-to-serve business, but your employees as well. Quick cash loans can provide the capital required for prime quality tools and the overall employee turnover can be reduced along with higher efficiency and morale. Businesses can avail quick cash loans without any long lending process or even a business owner who has a poor credit history. A promising business with significant amount of credit receipts and stability will get cash loan inside of 48 hours. The capability of choosing repayment schedule is an added advantage of these working capital cash loans.
Cash flow working capital loans have made it simpler get a small business loan without much hassle. However it is important to do proper research about the lender before applying for these loans. Internet is the foremost option to identify a reliable and responsible lender. Most effectively is to check the BBB for any records that may indicate any complaints filed against the lender. There so many online cash loans vendors it can easily be really hard to differentiate reliable one to an online scam.
Hopefully this article has assisted the small business owner with understanding that getting approved for small business loan is a difficult process in present economic condition of our country. But through a private lender a cash working capital loan allows the business owner to obtain a business loan for their business and survive through any financial crunch. These tips will get the small business owner a business loan quickly and easily without much documentation. Working capital cash loans can help your business in a financial urgency and make it easy to handle any future troubles.
For help with your business working capital, Call BRT Financial at 904-551-6090 or www.BusinessCapitalFunder.com
Article Source: https://EzineArticles.com/expert/Richard_Bonomo/42528
Understanding Working Capital Financing Options For Franchises
One of the oldest adages regarding starting and running a franchise is the answer to a common question; "What are the three most important aspects of a successful business?" and that answer is - "location, location, location."
Which is great when you are just starting out and want to ensure that your business - your franchise - is located where the largest amount of your potential customers are (or, where they are most likely to find your business).
However, after finding the perfect location, launching your business and drawing all those potential consumers to your company - then what? How do you ensure that your business can service them all - can keep them happy and satisfied with your products or services?
Launching a business in the perfect location is a great first start - but, it is only the start. After your business is up and running, that is when the hard work really begins.
A retail franchise has to not only ensure that it has the inventory on hand to meet customers needs but it also has to continuously reinvent its inventory mix to meet those same customer's expectation - bringing them back over and over again.
A service franchise business not only has to offer services that customers are willing to pay for (not just do themselves) but has to have the supplies and labor on hand to meet that demand and be flexible enough to service each customer's individual needs across any level of demand.
And, a retail manufacturer has to ensure a ready and constant supply of raw materials to meet the demand for its products - regardless if that demand is up or down.
In essence, this means that the franchise has to ensure that its operations are flexible enough to overcome and eventually satisfy any and all customer needs.
How this is done, however, is by asking another question; "What are the three most important aspects of running a successful business?" and the answer is - "working capital, working capital, working capital."
What Is Working Capital?
Working capital is essentially the life blood of a business - any business including franchises. If you compare your business to a vehicle (car, truck, motorcycle, big rig, etc), it is one thing to buy or own an automobile but it is the another to make that vehicle go down the road - getting you from point "A" to point "B". To do this, you need a form of fuel - gas, diesel, electricity, bio-fuels, etc. Without that fuel, your vehicle will just sit around collecting dust.
In business, in order to make your company operate efficiently, you also have to add fuel to it - in the form of working capital - to get it from point "A" to point "B" or from start up to growth or growth to expansion or expansion to success.
Working capital can come in many forms from acquiring (financing or obtaining) inventory or raw materials to obtaining or having the cash on hand to pay needed labor, utilities and even rent.
Image a franchise (let's call it "Any Time Tools and Machines") lands a new, big customer that wants to buy $1 million dollars worth of the services it offers (providing tools and machines for huge construction projects) - but it doesn't have enough of those tools and machines on hand for this job and cannot afford to get more right now to complete that job - which would take some $100,000 in additional rented or leases equipment. The franchise cannot consciously agree to that job and thus that customer takes that $1 million elsewhere.
Or, a residential blinds installation franchise gets a contract to install blinds and shades in a newly constructed apartment complex that needs to be completed in the next 30 days but will not get paid for the job for another 60 days when the apartment complex does its final closing. However, the franchise has to turn down this $250,000 job because it does not have or cannot afford the labor needed to complete the installation in the next 30 days (because that new labor will need - by law - to be paid before the 60 day apartment closing and subsequent payment for the franchise's services).
Since the beginning of time, businesses have faced working capital short-falls that have essentially destroyed their companies. These businesses have done everything correctly up to that fatal point. They have driven customers to their companies and provided the products or services those consumers wanted. Yet, because of poor working capital management, they get more customers than the have the capital on had to service and are forced to turn those patrons away - not only losing that business but creating a negative impression in the community that keeps other, new customers at bay (not to mention the business that agrees to a job or order and cannot fulfill it and consequently gets sued to death for it).
How Franchisees Finance Their Working Capital Needs
1) Traditional Business Loans. Banks have great financing program for franchise businesses. But, when it comes to working capital, the best product they offer is their revolving lines of credit - either secured by the financial assets of the business like accounts receivables or inventory or unsecured focused only on the business's revenue or cash flow.
Either way, these commercial lines of credit work just like big credit cards (without the super high interest rates). Thus, your business can establish a line of credit that it can draw on when needed, satisfy its working capital needs to complete a job or sale, then with the proceeds from that order, pay back the line and do it all over again when needed - the key here with lines of credit is that you only have to use it when you want to use it and only pay (interest) on what you do use (besides the annual fee).
If your franchise can qualify, a bank line of credit is your best working capital option today.
According to the SBA's Office of Advocacy;
"How are franchises financed?
Existing employer franchises finance expansion using the same financial tools as other businesses, but startup franchises are more likely to use a commercial bank loan. (37.8 percent of franchises versus 23.1 percent of all employer startups used a bank loan.)"
And, it is not just banks that provide these working capital choices as some credit unions do as well as the Small Business Administration (SBA) who can guarantee these credit lines under their 7(a) loan program.
2) Alternative Business Lenders. Working capital is what the bulk of the alternative lenders do - all to provide your franchise with the operating capital it needs from inventory, materials, labor or whatever operating need is required.
There are essentially 3 types of alternative loans for working capital:
Factoring Receivables: Many times, businesses that invoice their customers for payment have to wait for those customers to pay - sometime 30 days, 60 days or more. But, those same businesses face their own capital challenges like having to pay employees, buy additional inventory or supplies or starting the next job or order - yet not have the money on hand to do so until those invoiced customers pay.
However, accounts receivable factoring companies will advance up to 90% of those outstanding invoice amounts so that your business can move forward. Then, when your customers do pay, you pay back the advance, keeping the remaining 10% - less a factoring fee.
Purchase Order Financing: Remember our "Any Time Tools and Machines" franchise that needed capital to get - say on loan or lease - machines to complete a huge $1 million dollar job but did not have any way of doing so.
Well, that franchise could have still signed that job order then taken that order to a purchase order financing company and received the needed $100,000 - the full 100% of what it needed to complete that job.
Then, when the job was completed and the franchise got paid, it could repay the financing company the $100,000 advance and a small financing fee and not have lost out on that highly profitable job.
Cash Advances: Let's say that a retail franchise operation has already purchased the inventory it will sell over the upcoming summer season - it submitted and paid for these orders months ago to ensure that it would get its orders fulfilled by its suppliers in time.
However, a few days before the summer season kicks off - after the company has already spent its current allotment of working capital on its inventory but before it could sell any of those products for revenue - a new fade (for its market) becomes a national frenzy - forcing its competitions to scramble to get products for his new fade.
Yet, without additional working capital or a way to get it, this business will lose out on this fade and the profits that come with the high impulse and emotional consumer buying that follow these frenzies.
Now, this franchise does not have accounts receivables to factor nor does it have purchase orders on hand as its consumers do not make large advanced purchases.
But, since the business does earn revenue month after month - it can receive a cash advance against future sales - then use that advance to buy the new fade products.
Then, as it sells those products over the next few months, the financing company will simply take micro payments - usually daily - from those sales until the advance is paid in full - plus a small fee.
Here, the franchise could receive an advance against the amount of average monthly sales its earns via customer's credit and debit card purchases (called Business or Merchant Cash Advances) or could receive an advance against its entire monthly revenue averages (called Bank Statement Loans or Revenue Based Loans) - essentially solving this franchises working capital problem in a matter of days.
3) Plow Back. Now, if your only option is to use outside financing for your business, then bank lines of credit or alternative financing are your best options.
However, you can - and should - manage your operations and your revenue in such a way that you can internally finance your own working capital requirements.
It simply works this way: Your franchise earns say $20,000 top line revenue per month. However, after paying direct costs as well as overhead expenses for salaries, marketing and general administration costs, it has net operating income (after taxes and interest) of say $7,000 - $7,000 that it would either use to pay down debt, pay back investors or simply take out of the company.
But, if you also know that your business needs an additional $5,000 per month to handle its future monthly working capital or operational capital needs - then why not hold back that amount from the $7,000 net income and plow it back into the business. Much cheaper to do it this way - using your own money - then to face the added expense of financing your business's working capital needs.
Bottom line here is that if you can't get a bank or credit union line of credit, alternative loans can easily fill your needs - they are quicker to process and fund - but they do come with higher interest and fees.
Location, location, location is the driving force that can make or break your franchise from a marketing stand point - putting your business in the path of potential customers. But, just because your have those customers patronizing your business, if you do not have the operating wherewithal to satisfy those customers - now and keeping them coming back - then your location, in the end, really mean nothing.
Thus, if you don't want to waste your time and kill your franchise before it even has a chance to succeed, then ask yourself this question; "What are the three things I can do right now to ensure the long-term growth and success of my franchise?"
Then, from this article, you can find your answer - which is "working capital, working capital, working capital."
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