Merchant Cash Advance or Invoice Factoring

10:09 10 March in Blog, Business Funding

One of the options small businesses may turn to for financing immediate cash flow needs is a merchant cash advance (MCA). However, these cash advances can set off a devastating cycle of borrowing which can have catastrophic consequences for a business owner.

While a Merchant Cash Advance, (MCA) can help a business owner secure immediate financing, there are several pitfalls they should be aware of before opting for this type of financing. First, most MCAs are approved based on debit and credit card payments over a specific period. Secondarily, they can be very costly, with APRs (annual percentage rates) as high as triple digits.

MCAs Work But at What Cost?

While in the past all MCAs based advances strictly on debit and credit card transactions, more vendors are offering more flexible options which include all sales. Business owners would submit an application, the vendor will make a proposal to offer a certain amount of cash in advance and payment arrangement will be made. However, there’s more to this than meets the eye.

When using an MCA, the repayment terms typically mean the business owner will pay the advance through daily or weekly payments plus fees. The amount paid is generally based on various factors including the amount borrowed, plus the fees, plus the term of the MCA. Repayment is based on the amount of debit and credit card sales and is debited automatically from those sales. The predicament most business owners face is they have no control over the length of time it may take to repay the MCA — since it is based on new sales, this could mean it takes longer to pay the full amount. Remember, the longer repayment takes, the higher the APR. The other concern is the contracts may be confusing meaning your client may be signing something they do not fully understand.

Why Invoice Factoring Makes More Sense

For nearly every business owner, invoice factoring is a better option. There are several reasons for this including:

  • Easy to understand — contracts for accounts receivable financing are written in a manner which is clear to the customer. Business owners will be able to clearly review their terms and understand exactly what they are paying for fees.
  • Not based on future sales — rather than taking a chance on lower sales in the future, meaning longer repayment times, your clients are getting an advance on existing sales. This is good news because it means APRs are not higher, and they are not dependent on monies not yet earned to get the cash they need.
  • Different type of automatic payment — payments for factored invoice are made by the end client; the one who is paying the invoice. That means your client never has to worry about a weekly or monthly payment to pay back the advance they have received.
  • No impact on other sales — the only funds used to pay off the advance your client has received is the payment on the invoice they have factored. This makes sense because should there come a time when they have a need for additional cash, they can select other client’s invoices to factor.

While MCAs may be valuable for some clients, at Capstone, we believe invoice factoring is a more stable, safer option for nearly every client. Since repayment does not impact future sales, it also allows your clients more flexibility.

Capstone understands every business is different and may have different financing needs. That’s one of the many reasons we are here to offer a customized financial solution to help your client meet their immediate cash flow needs without impeding their future sales. Contact our offices today and let us see if we can help you find the best solution for your client. You can reach one of our highly-trained representatives at (212) 755-3636, you can contact us by email at [email protected] or you can fill out our simple to use online contact form. Let us help you drive your client’s growth and success.

 

Funding Opportunities and Small Business Industry News

10:34 14 January in Blog, Business Funding

As the year approaches the end, it is time to focus on what steps we could be taking to increase business during 2019. On this front, there is plenty of good news for small businesses, particularly those who are designated as minority-owned, those businesses which have a HUBZone designation, or Service-Disabled Veteran Owned.

Increased Government Contracts May be Available

The U.S. Treasury Department recently released information about the potential of increased contracts during Fiscal Year 2019 for businesses with the previously mentioned designations. This is great news for those businesses who wish to start doing business with the federal government since this is a great way to grow your business.

Understanding the Designations

Small businesses may not be aware they could be eligible for prioritization to win government contracts. Here are the descriptions of each of the categories where your business may have priority over other businesses when it comes to bidding, and winning government contracts.

  • Minority-Owned Business — a small business where the ownership is at least 51 percent controlled by a minority population may request minority-owned designation. Minority is defined as those identifying with specific groups including Asian, Black, Hispanic and Native American.
  • HUBZone Designated — small businesses located across the United States may be surprised to learn they are in a HUBZone. Currently, the commitment is that at least three percent of all government contracts will be awarded to businesses who fall into this category.
  • Service-Disabled Veteran-Owned — these businesses are owned and operated by one or more veterans who have service-related disabilities. Another important note to be aware of is the day-to-day operations must also be managed by a veteran. Overall, there is a commitment to award three percent of contracts to small businesses meeting this criterion. This is in addition to the commitment made by the Veteran’s Administration utilizing the Veterans First Contracting Program.

Rising Wages, Low Interest, Greater Competition

More small business owners are being forced to consider increasing wages because of the tightening labor markets. However, this is not necessarily bad news since interest rates are still well under control. Thanks to some regulations being modified, there is also a lessening of restrictions on small businesses.

During October of 2018, most small business owners believe it is a good time for them to continue to increase hiring, invest more in their businesses and many have experienced greater sales. While this is all positive, most small business owners still feel access to capital is one of the challenges of operating their small business.

Financing Your Growth

Fortunately, small businesses, particularly those who wish to do business with the government have options. Businesses often need additional resources to place successful bids, which in many cases, may be out of reach for a small business owner either financially, or simply due to a lack of contacts.

Capstone Capital Group can help! We have experience helping small minority-owned businesses get the credit they need to grow their business. We also offer a range of services designed to help you get the resources you need to successfully bid on government contracts.

We have helped with non-legal contract reviews, providing bid support letters, and helping minority-owned businesses get the accounting, estimating, and engineering referrals they need to support their bid.

For more information on Capstone’s diverse funding programs, please contact us at (212) 755-3636 to speak with a representative today. Our highly trained, professional representatives will work with you to obtain a minority business loan and start growing your business today. Let us put our years of experience to work and help you grow your business in 2019.

Government Funding for Small and Large Businesses

08:18 07 January in Blog, Business Funding

Business owners are not always aware of the various loans and programs offered by the government to provide business funding. While not every business will qualify for these programs, it is worth your time to investigate the potential opportunities for your business, regardless of the size.

Here are some of the most common opportunities you should be aware of if you are searching for funds for your business or if you are looking to buy one.

Small Business Administration (SBA) – whether you are starting a business for the first time, your business is in a designated disaster area, you are considering expanding or you need help with exporting, the SBA is a good option.

S. Treasury Department — if your business is promoting economic growth and providing the opportunity for new jobs, there is a program called the Small Business Lending Fund (SBLF). This program is administered by community banks and community development loan funds.

U.S. Department of Agriculture (USDA) — businesses which are located in rural and urban areas where the population is less than 50,000 people may qualify for loan guarantees under this program. Funds may be used to refinance debt, purchase equipment or real estate, or acquire another business entity. There are restrictions on this program, but the program is worth looking into.

Technology Funding — these programs are designed to partner small and large businesses and help launch new, innovative products. The specific programs are known as Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR). These funds are often awarded in the form of grants and/or contracts with NIH and other government agencies including DoD.

General Federal Government Programs — every business should remain abreast of the offerings of the federal government in terms of financing. In some instances, there are loan guarantee programs which make it easier for you to secure a loan through a local bank. In other cases, there may be grants available which would give your business the opportunity to test new products.

State Level Programs — nearly every state offers business owners opportunities. Whether these opportunities are in the form of tax incentives, opportunities for contracts with the state, or special financing opportunities, you should check the programs offered by your state. Keep in mind, there are several states which also offer incentives for businesses who intend to provide a certain number of jobs. In most cases, you need not have your primary business located in a specific state to take advantage of these programs.

Business Funding Solutions for Companies

For many business owners, there are limited opportunities to take advantage of government funds. For example, construction companies, franchisees, and licensees may have business models that are not conducive to government funding programs. This does not mean you are without sources to capital, in fact, this is when you should consider contacting Capstone Capital Group.

At Capstone, we understand every business needs access to capital in order to fund growth. We are also aware that many businesses struggle through seasonal differences in business. This is why we take the time to understand your business, determine your short and long-term funding needs and develop a program that works to meet your growth goals.

We have helped small and medium-sized businesses get access to the funding they need even when they may not qualify for government funding either in the form of direct capital or loan guarantees. We can help with a broad range of financial services including spot factoring, letters of credit, and purchase order financing.

You should never let the lack of immediate capital slow down your growth potential. Contact Capstone Capital Group today at [email protected] or call us at (212) 755-3636 and speak with one of our representatives about designing a financing package that works for your business.

Safeguard Future Growth for Your Small Business in this Booming Economy

05:26 31 December in Blog, Business Funding

 

During times of strong economic growth, it is easy to lose sight of the fact that eventually, we will see a slow-down. There are some steps you can take today which can help you during the next economic downturn by taking advantage of the current booming economy.

Tackle Your Outstanding Debt

One of the best ways to prepare for the inevitable downturn in the economy is to take care of your debts while the economy is booming. Handling your debt now can help prepare you when business starts slowing down. You will be in a better financial situation if you have less debt.

Consider Upgrading Equipment

Every business depends on their equipment operating successfully to meet customer demand. If you have business equipment which is no longer operating at peak performance, this is the best possible time to consider upgrading. Whether you lease or buy, upgrading will prepare you to better meet your customer’s needs.

Review Your Business Plans and Goals

If you have not recently reviewed your business plan, this is the ideal time to undertake that task. You should be looking at how you have met the goals you initially laid out, and if you have missed any of those goals, determine why. This is also a good time to review your plan for possible diversification opportunities. Keep in mind, the more diversified your offerings, the more likely you will to thrive in a future recession.

Hire the Best Talent

Today, while your business is facing a strong outlook is the time to find the right talent you may need tomorrow to continue to grow your business. This is particularly important if your business goals have changed slightly. Since the labor markets are tight, this process may take longer than you think.

Explore New Opportunities

This is a great time to increase your marketing and expand your footprint. During a booming economy, you can identify new markets, new customers and begin negotiations. Each of these steps will help you increase your business and safeguard your future growth.

Do an Internal Processes Audit

Take advantage of the booming economy to see where you can improve your business processes. The time you spend today to make sure you are maximizing production while maintaining the highest level of quality can help ensure that when the inevitable slow-down occurs, you are positioned as a leader in your industry.

Position Yourself for Future Funding Needs

Even though you may not need funds to manage your cash flow today, you can prepare yourself for the future. One of the biggest pitfalls to business growth is having access to the capital you will need. While you are encouraged to pay down debt during an economic boom, you should plan for your future funding needs during the same time period.

You may be unaware you do not have to take on new debt in order to finance future business growth. In fact, there are numerous options you can use including invoice factoring, purchase order financing, and more. Since you will be hesitant to take on new debt once business slows down, now is the right time to begin preparing for your future capital needs.

Capstone Capital Group has a dedicated team committed to helping businesses achieve their goals. We can help with a range of financial solutions and help you take advantage of the opportunities you have during a booming economy. We can also help provide solutions which will help you through periods of slow growth when cash flow is challenging. Remember, a booming economy will not last forever. You can take steps today to ensure when this latest boom starts slowing down that your business will be prepared.

 

2018 Facts for Small Businesses

15:56 03 December in Blog, Business Funding

 

There are more small businesses in the United States than most people know. Current estimates are there are 30 million businesses classified as small business.  There are more than 57 million people employed by small business owners, making small business an important part of our overall economy. It is estimated small business accounts for more than 60 percent of overall job growth in the U.S.

Geography of Small Businesses

Every region of the United States has small businesses. However, the South and Mid-Atlantic are home to nearly 50 percent of all small businesses while New England and the Farm Belt account for only 10 percent. Keep in mind, by definition, small business is defined as any company employing fewer than 500 employees.

Financing Challenges Associated with Small Businesses

Nearly one-quarter of all small businesses fail to obtain sufficient levels of financing. When you combine this statistic with the decline of banking institutions in the country, this is a sobering statistic. During 2017-2018, 271 banks closed their doors. This means small business owners often had to elect to find alternative methods of financing their businesses.

Impact of Financing on Small Business

Small businesses have always faced financing challenges, particularly during their first few years. Some of the options they have used include:

  • 32 percent depend on company earnings
  • 31 percent depend on credit cards
  • 15 percent depend on large banks
  • 14 percent depend on community banks
  • 13 percent depend on loans from friends and family

When a small business cannot obtain the funding they need, they are faced with difficult decisions. Some of the ways business owners respond to a lack of funding include turning down sales, cutting employees and slowing their operations or growth. Since so many small businesses exist, this could spell trouble for the larger economy. In most cases, one of the primary reasons given for closing the doors on a small business include lack of financing.

Small Business Diversity Statistics

Small business across the country account for nearly 50 percent of all employees. There are a staggering eight million firms that are considered minority-owned. More than 250,000 businesses are considered small business exporters as well.

Challenges Funding Import/Export Transactions

Because of the number of small businesses involved in trade, it is easy to assume they face more than their fair share of challenges when it comes to obtaining funding. This is true at most stages of an export business because there are numerous components including logistics.

Fortunately, Capstone Capital Group can help these businesses by providing a broad range of services to help with export financing. We understand how to structure the right type of transaction to help with financing, provide logistical support when needed, and help you with other aspects of these transactions. We understand how important this is for your continued business growth and that is why we offer customized trade financing solutions designed to meet your needs.

Minority-Owned Business Solutions

Despite the number of minority-owned businesses across the United States, many of these businesses suffer financially because of a lack of resources. There are hundreds of studies showing a minority business owner can still face hurdles when seeking financing options. Like every business owner, a minority must have access to public and private funding sources to help them growth and allow their business time to thrive.

This is when you can count on Capstone Capital Group. We take pride in the fact we have worked with various minority-owned businesses to help them overcome their financing challenges. Thanks to the efforts of our diversity team, we can provide a range of financing solutions to help minority-owned businesses the opportunity to find a solution that best meets their needs.

Small business owners need not borrow money on their high-interest credit cards, reduce their employee count, or turn down potentially lucrative contracts. Instead, contact an experienced member of our team at (212) 755-3636 to speak with a representative today and let us help you get the funding you need.

 

 

Current Market Conditions are Impacting Business Funding

08:12 21 November in Blog, Business Funding

Stock market corrections, tariffs being imposed, and more job openings than ever before are putting unseen pressure on many small and mid-sized business owners. While many people may not understand how these issues impact business funding, they can, and do have an impact across the board for a business owner who is starting up, or one who is attempting to grow their business.

Stock Market Corrections and Financing

Nearly one-third of small business owners use their credit cards to fund business growth. An additional 13 percent borrow money from friends and family to grow their business. The problem is with rising interest rates, and a significant stock market correction, these funds may be costlier, or unavailable.

Rising interest rates have an impact on credit card interest rates, making this a less attractive option. Stock market corrections have an impact on what liquid assets someone has available since uncertainty in the markets tends to lead to more people fleeing to cash positions. This type of uncertainty may also mean more people are unwilling to spend, or invest in businesses owned by family and friends.

Impact of Tariffs May Not Be Immediate

While some businesses may not feel the immediate impact of the newly imposed tariffs on trading partners, there are many who will feel the impact over time. Initially, those who are involved in import/export businesses may feel the crunch which could put them at a disadvantage. Unfortunately, as with many things, the impact will trickle down to other businesses.

While an import business may feel immediate impact from these tariffs, other businesses, including those businesses focusing on storage of items for export, transportation, and production of materials. Since this trickle-down effect will take place over time, these businesses may experience periods of growth and slow-downs which could make traditional financing harder to obtain.

Job Market Impacts all Business

The job market has shown steady growth for more than four years at this time. This is good news for those entering the workforce but may not be such good news for businesses trying to recruit new talent for expansion. Currently, there are more than seven million job openings across the United States according to the U.S. Bureau of Labor reports issued in October 2018. This number bodes well for job seekers but may not be as positive for those businesses who are considering hiring.

More job openings mean there is increased competition among employers who are hiring. This becomes a job searcher’s market which can mean the cost of hiring is going to be higher. Increased competition means employees can seek better pay, better benefits, or a combination of both, putting more financial pressure than ever on small and mid-sized businesses.

Cash on Hand Will Help Fuel Growth

Small and mid-sized businesses who are concerned about the changes in the market including a volatile stock market, a tightening labor market, and increased tariffs should ensure they have cash on hand to ensure they can continue to grow. While this may seem challenging, it is possible to convert your accounts receivable to cash to make sure you are able to take advantage of opportunities which present themselves. For example, a business may accept purchase orders and be able to collect immediate cash against that order.

At Capstone Capital Group, we understand how various external factors can have an impact on your business. Our goal is to help minimize the uncertainty you could face if you need immediate cash to fulfill a contract, enter into a new agreement, or need to hire new staff members. Contact one of our representatives today, call us at (212) 755-3636. Let us help you fund a custom solution to your financial needs.

 

5 Things A Small Business Should Look For When Choosing A Brokerage

11:12 07 November in Blog, Business Funding

 

Small business owners often turn to brokers to help them secure financing. This can be beneficial because generally, a broker will have access to numerous sources of funding which can mean a higher likelihood of securing the funding you need to keep your business operational. Here are five things you should look for when choosing a brokerage:

1. Experience with Your Industry

In some instances, a broker will focus on obtaining financing for businesses which operate in only a few industries. While specialization can be positive, if you are working with someone to secure financing on your behalf, you want to confirm they have an idea of the challenges faced in your field.

Since every business has different challenges, you will want someone who can meet those challenges head on. For example, some industries suffer from annual work slowdowns because of weather-related issues. Others may have increases in work during the holidays. The brokerage you select should understand these nuances.

2. Proven Track Record

You should ask a potential brokerage to provide you with at least one, and preferably more than one reference. The last thing you want to do is work with someone who has no track record. Asking their previous clients about the work that has been done on their behalf is one way to ensure you are working with a brokerage you can count on for results.

While there are many start-up brokerages who will work hard to prove they can process new inquiries, this could cause delays in your ability to get the funding you need, in the time frame you need to have funds available.

3. A Menu of Products

One of the challenges when selecting a brokerage is finding out what types of loan products they offer. If your industry requires various types of funding, for example, loans, accounts receivable, and equipment loans, these are often handled by different types of lenders. Make sure the brokerage has the capacity to work with various lenders.

While some may feel limiting the number of lenders who work with a single brokerage, this could put you at a significant disadvantage. When these types of limitations occur, what happens is you must fit into a specific “box” or it is harder for you to secur

4. Investigate Fee Structure

Another key aspect of working with a broker is how they are making their money. While some brokers are paid a simple finders fee by the lenders they work with, others are adding their fees onto your loan request. This may be done in numerous ways including increasing the interest rate you are paying, adding points, or increased fees such as application fees.

Before you get started with a new brokerage ask about the fees they charge and ask how they are paid. This can be very important particularly if you are looking for a long-term relationship.

5. Communicates Well with Clients

One of the final things you should investigate when searching for a brokerage is their communications with clients. Securing financing in a timely manner is important if you are depending on funding to grow your business, sign a new contract, or hire a new employee. If you are not able to reach your account representative in a timely manner, there could be devastating results.

Finding a brokerage who meets your needs is important. At Capstone Capital Group, we take pride in the fact we work with both direct customers and with brokerages. We offer a wide variety of financing products which many brokers find helpful to meet the diverse needs of their clients. We also have a number of ways for both clients and brokers to contact us so you can rest assured, we will be here to answer your questions or address your concerns.

 

Insider tips to growing your construction business in 2018

12:41 16 October in Blog, Business Funding

As fall weather approaches and your construction projects begin to slow down for the season, have you given any solid thought into how you’re going to grow your construction business in the next year? The quiet parts of the fall and winter are great times to strategize, upgrade and prepare for next year’s busy season, allowing you to put the plans in place that you’ll need to see strong growth. Here’s a quick look at some insider tips to help you grow your company next year.

Insider tips to growing your construction business in 2019

  • Go digital. If you’re still performing takeoffs like it’s 1999, it’s time to make a change. Modern construction estimating software provides you with a wide range of tools, including cloud access in the field, task lists for your crew, options to create field notes to avoid errors and pricing databases that are automatically updated. Look for a software as a service option to avoid having to make a big investment.
  • Keep up with automation. Many of today’s software options have opportunities to automate your workflow. Your estimates can automatically be synced with your accounting software, while marketing emails, billing reminders and similar tasks that have been labor-intensive in the past now happen automatically.
  • Add smart tools. If you’re like many contractors, you’ve probably had issues with materials walking off, tools disappearing and similar issues. Fortunately, there are easier ways to keep track of your business assets on the job site without having to hire security. Consider tools that have digital fences, Bluetooth tags or inexpensive job site cameras to stay on top of these type of issues.
  • Expand your digital marketing efforts. Digitization is causing a huge upheaval in our society and how we do business. If your website is lackluster, your social media marketing needs work or you’re not sure how to reach out to all those people searching for contractors on Google, this is a great time to jump on the bandwagon and gain market share over companies that are still behind the trend.
  • Update old equipment. Whether it’s that old backhoe that is on its last legs or the contractor’s saw that just isn’t performing up to specs, you can only work as effectively as the equipment you use. Consider taking out a loan for equipment that helps you get the job done more quickly, more effectively or with less waste.
  • Look into new markets. Renewable energy systems are a great option to consider for electricians, as they’re seeing serious growth year over year and are projected to continue for decades. What about super-efficient insulation or wall systems? Do you need to look at new options to take advantage of structured cabling upgrades in the next few years?
  • Go green. Green technology and materials are hot right now, whether you’re working on a LEED-certified structure or simply need the best price on recycled vinyl siding. As the focus on sustainability grows, the demand for contractors who are already familiar with green technology will grow.

By implementing a few of these tips into your plans for next year, you can quickly realize growth and take advantage of favorable market conditions without taking time from your busy schedule as things begin to ramp up again next spring. If you’re ready to grow your construction business this year, it’s time to talk to Capstone Capital Group today to get started on a low-cost loan or other financing option. Take a look at our many construction financing options and discover what the future holds for your company’s prospects.

 

Federal Reserve Rates: What an Increase Could Mean for Your Business

12:41 09 October in Blog, Business Funding

The Federal Reserve Board will meet again on September 25-26 and decide about raising interest rates. Currently, it is anticipated we will see a rate increase during September and again in December, particularly given the current state of the job market, and a better overall economic outlook.

The challenge for many businesses is this could mean higher interest rates on borrowed money. Current business owners who have loans out at adjustable rates could be facing higher rates, which means less profit being realized.

Obtaining Loans Could be More Challenging

Interestingly enough, loans to businesses continue to be slower than anticipated. In January of 2018, there was a report released by the Board of Governors of the Federal Reserve System which showed loans to small businesses have not yet recovered from the recession, in spite of better overall economic numbers.

This means small and mid-sized business owners are still facing challenges getting the working capital they need to fund their businesses. Since the current climate is positive for businesses, most find they need more capital to invest in new hires, equipment, and materials to ensure they can deliver on contracts to their customers.

Overall Production and Interest Rates

One concern about rising interest rates is the impact they have on small and mid-sized companies which may lead to slower growth. According to the Federal Reserve, overall production still remains nearly two percent below the average of the last 10 years. This is good news and bad news largely depending on how you want to look at it. The fact that production is lower than the average means there is room for expansion to meet the average and there is room for growth beyond the average if the economy does not contract because of higher interest rates.

Expanding and Cash Flow Issues

One of the many challenges faced by a company who wishes to increase their production is cash flow. Let’s face facts, it is nearly impossible to ramp up production without hiring additional staff, potentially purchasing more equipment, and taking on bigger contracts. This means investing more money into your company, money that you may be able to anticipate over the next 90 days, but do not have available today. This is when you may seek additional capital in the form of a loan — the challenge there is if you have been suffering like so many businesses from slower than usual production, your company’s balance sheet may not support taking on new debt. The threat of looming interest rate hikes may also prevent you from seeking a loan.

Accounts Receivable Factoring May Provide Answers

One of the advantages of using your accounts receivable to generate working capital is you do not need to take on any new debt. Instead, you can use the proceeds of a factor advance to accelerate your working capital and fund your company’s growth.. The larger the contract, the more cash you can infuse into your business.

Regardless of whether you are in the staffing industry, your business focuses on construction projects, or you are a minority-owned business seeking an infusion of capital, Capstone Capital Group can help. Our goal is to find the right financing solutions that fit your needs and make sure you have the capital to continue expanding your business. Contact our offices today and speak with one of our account representatives and let us create a customized proposal based on your specific needs. Do not let increasing interest rates or a lack of access to capital prevent you from realizing your business goals.

 

What is Asset-Based Lending (ABL) and How Does a Business Qualify?

12:41 28 September in Blog, Business Funding

Asset-based lending is not as big a mystery as it sounds. Simply put, this method of financing has been around as long as businesses have existed. Businesses borrow money from a lender based on the value of a specific asset. In some instances, the asset may be accounts receivable (invoices), equipment, or real estate.

Why ABL Often Focuses on Invoices

Perhaps one of the best things about ABL is that business owners can obtain the funds they need to maintain their operations without worrying about how their past income will impact their borrowing ability. The most common form of this financing (ABL) is accounts receivable financing — using future invoices as a way of obtaining cash immediately.

While physical assets such as real estate or equipment are also used as collateral for loans, the fact is invoice factoring is often the best option for a company to secure the capital it needs while not taking on any debt.

Vetting Still Matters

There is often a great deal of confusion about how invoice factoring works. Keep in mind, if your business is primarily consumer based — that is you sell products directly to the public and have no B2B relationships that involve accounts receivable, you are unlikely to be able to use factoring. However, if your primary business base is selling goods or services to other businesses, you can typically work with a factoring company to secure funding.

When you work with a company who will provide funding based on your accounts receivable, the strength of your customers becomes the most important factor. The creditworthiness of your customer base may impact the following:

  • Amount to be advanced — typically, a factoring company will allow you to collect an advance of between 50 and 75 percent of the face amount of an invoice.
  • Which invoices may be used — the less creditworthy a client, the less likely a factoring company will be to advance you funds.

Advantages Associated With ABL

One of the best reasons to consider using your invoices to generate working capital because your company is not taking on any additional debt. Your company gets the cash they need to continue paying the costs associated with your business including meeting payroll expenses, rent of facilities, and purchasing new materials to fulfill orders when you need it most. Fortunately, many small, and medium-sized businesses can use asset-based lending since it is one of the most flexible forms of financing in terms of qualifications.

Industries Using Invoice Factoring

Perhaps one of the reasons invoice factoring is so popular is there are numerous industries who benefit from using these services. For example, a staffing company would have issues obtaining loans because while their main role is to fill temporary positions at companies, they typically have few physical assets. Additionally, these companies have irregular cash flow — a staffing company is generally paid only after a contract with a client is in process. This means they may face cash flow issues and the additional challenge of obtaining a bank loan.

Subcontractors, contractors, electricians, and other companies who may have long-term contracts with a business to do work but have few physical assets also can benefit from invoice factoring. The stronger the client base, the easier a company can use factoring to their advantage.

Every company has different financing needs. In some instances, a company may be able to improve their cash flow by using invoice factoring. Depending on the industry you are serving, you may need other services including letters of credit, logistics assistance, or construction financing. Instead of trying to explain your business to a local bank, or struggling with financing because your business has seasonal cash flow challenges, contact Capstone Capital Group and let us help you find the right financing options for your needs.

 

Download: Infrastructure Investment & Jobs Act – Contract Opportunities and Funding Analysis

Capstone wants your business to take full advantage of the opportunities (or use projects) available through the Infrastructure Investment & Jobs Act recently signed into law.

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