Funding Your Startup

The Pros and Cons of Funding Your Startup through Credit Cards

20:38 06 October in Blog

Is funding your startup through credit cards a viable solution? After all, not every aspiring entrepreneur is lucky enough to qualify for a business loan. We’ll tell you the risks of funding your startup with credit cards and some alternative strategies you can explore.

Tempting Low Cost

In some cases, for $5000 to $10,000 you could launch a startup and it can be a tempting motivation for using credit cards. Several successful startups have gotten their start this way, including the Tropolis group. In the recent economic climate, many starting entrepreneurs find themselves without the collateral to start a business, and credit cards seem to be the only option. However, building a business that relies on funding from clients can be risky when using credit cards, because a late payment from a client can lead to a late credit card payment. Interest payments could accrue.

Organization is Key

Funding your startup through credit cards also requires a high level of organization if you want to keep your debt low. To ensure you do not get in over your head with debt, you’ll have to pay the credit card bills in full every month to avoid accruing interest payments. It may seem like common sense, but organization skills are key to remaining out of debt – it’s easier said than done.

Transitioning to Sustainable Funding

Even if you’re starting your business by relying on credit cards, your long-term strategy needs to change. You should plan to rely on revenue from customers. Using credit cards to fund long-term infrastructure, or even salaries for employees is a good way to end up in debt. Pay off your debt. Potential investors are not keen on seeing it.

Ultimately, the choice is up to you. Just know that there are better options out there, like purchase order financing and trade financing, both of which are available at Capstone.

For more information on lending options that are tailored to your business needs visit our homepage. Check back in on our blog from time to time for more industry news and analysis.

Purchase Order Factoring

Is Purchase Order Financing Good for Business Loans?

21:37 22 September in Blog

Even if you don’t qualify for a traditional business loan, there are options out there. Purchase order financing is just one of them. As you’ll see, certain kinds of businesses might want to make purchase order financing their first choice. We’ll tell you what it is, how it works, and what kinds of businesses should make it their first choice for lending.

What is Purchase Order Financing? 

Let’s say you’ve got an interested client, but you don’t have the funds to fill their order. For growing businesses, that first big order is incredibly exciting. It’s the kind of thing that can propel you from startup territory into a stable business. If you don’t have the money to fill the order when it is placed, purchase order financing is what you need.

Purchase order financing is an advance that allows business owners to make an important transaction, fill a shipment, or deliver a service. And a contract guarantees that the business owner will use part of the returns from the transaction, shipment, or service to repay the advance.

How Does it Work?

Here’s what you’ll need to do to qualify for purchase order financing.

1.    Obtain a verified purchase order or contract from the customer.

2.    Estimate the amount it will cost you to fill the customer’s order.

3.    Present the verified purchase order or contract to Capstone as collateral

4.    If approved, you’ll receive a contract from Capstone and get the funds to fill the order

5.    Once the goods or materials are delivered, and the customer has paid, you repay the premium and any pre-arranged interest.

Below are benefits of purchase order financing and examples of businesses that tend to use it instead of traditional minority business loans.

Benefits of Purchase Order Financing 

●    Technically, purchase order financing isn’t a loan, meaning it will not appear on your company’s balance sheet.

●    Your supplier will be paid, and your customer will receive their goods when they need them.

●    Purchase order financing allows small businesses to fill lucrative orders and establish working relationships with large customers.

●    Purchase order financing does not require A-1 credit.

What Businesses Benefit from Purchase Order Financing?

Some companies will find purchase order financing incredibly convenient and profitable. It is popular with manufacturing and shipping businesses with credit-worthy customers who have large orders to fill. The expected profit margin from the order should be at least 20 percent.

If purchase order financing sounds like the right fit for your business needs, visit the Capstone website. If you’re interested in any other kind of loan, check out our blog.

Benefits of Trade Financing

Four Undeniable Benefits of Trade Financing

18:14 17 September in Blog

The trade financing market is valued at around 10 trillion dollars. The question is: how do you align your business to profit from it? More importantly, what is trade financing, and how does it work?

What is Trade Financing? 

In today’s global economy, having an international clientele can mean the difference between business success and business failure. Trade financing is a kind of loan that provides the credit needed to fund international trade.

Here are a few examples of how it works. Let’s say you identify a growing market for your product in Europe, but don’t have the funds to fill orders there. A trade financing agreement will allow you to do it. What if you find a cheaper supplier in Asia, but the shipping costs are too expensive? Trade financing solutions will allow you to start buying the goods right away and repay the loan with the earnings from your new international partnership.

Other Benefits of Trade Financing

1.    Flexibility

Nothing is worse than seeing an opportunity and not being able to take it. Trade financing gives your business the breathing room it needs to grow when the opportunity presents itself. As such, payments can be made to the supplier in their local currency. And repayment is also tailored to the borrowers’ needs. Some agreements call for repayment in 30 to 60 days, while others allow up to four months.

2.    Convenience

Unlike a traditional bank or business loan, trade financing requires very little documentation. Trade financing contracts are clear-cut and straightforward, so you won’t end up getting surprise fees at the end of the transaction. When you work with Capstone, we focus on providing a convenient, excellent experience.

3.    Security

Making transactions with foreign companies may be outside your usual scope. Capstone has years of experience connecting domestic and international businesses, and we’ll be able to give you all the guidance you need.  Both you and your client will have the peace of mind of working with a security guarantee from a renowned financial institution.

4.    Transaction Flow

Funds are available almost immediately, which means you can improve your transaction flow. You’ll be able to keep your inventory or stock without having to pay large amounts upfront. The trade financing credit can be maintained on your books as working capital, not as debt.

For more information on alternative business loans and commercial financing, visit the Capstone homepage. Our previous blog entries have more industry news and analysis.

Pulling Back the Reigns of Growth – Small Banks Restrain Progress Fearing Costly Regulations

14:55 08 August in Blog
Banks have come under intense scrutiny in recent years following the financial crisis that began in 2007.  The regulatory pressure doesn’t seem to be letting up anytime soon as regulators attempt to reign in banks designated as “systemically important.”  
 
According to regulators, systemically important banks are those which report assets of more than $50 billion on average for four quarters in a row.  Once a bank has achieved this status, banks are required to comply with, among other things, stringent capital requirements, submit to yearly “stress tests” and to create processes for the winding down of a bank in the event of a crisis.
 
The purpose of placing a $50 billion asset threshold amount, according to regulators, is to keep a closer eye on banks whose potential problems could endanger the broader financial system.  However, some critics within the banking industry argue the threshold is too low and that banks who come close to that amount are far from “financial giants”.  This issue has caught the eye of Federal Reserve governor Daniel Tarullo, who stated in a speech that it might make more sense to increase the threshold from $50 billion to $100 billion for applying certain rules.  The suggestion being that the “stress test” process seems unnecessary for banks under $100 billion. 
 
As a consequence of these stringent and costly regulatory requirements, some small asset banks like New York Community Bank (NYCB), whose reported assets in the first quarter of 2014 was $47.6 billion, has come out with a statement that it is restraining its lending growth citing loans amount to assets.  If other small banks, like NYCB, who are coming up to the $50 billion threshold limit decide to take a similar approach and restrain growth by curbing its lending practices, some borrowers, like small business owners, may have a more difficult time obtaining the necessary financing they need to maintain and grow their business.  Fortunately, Capstone Capital Group, LLC has the solution. 
 
Capstone Capital Group, LLC has been helping small to mid-sized businesses for years obtain the necessary working capital they need to sustain and grow during uncertain economic times without all the red tape you normally get from most banks.  Capstone Capital Group, LLC specializes in Purchase Order factoring, Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group.  

Deceptive Headlines: Read the Fine Print

19:30 06 February in Blog
A headline from the Money & Investing section of The Wall Street Journal on January 30, 2014 was “U.S. Banks Start to Ease Limits on Lending”.  What a casual observer would glean from such a headline is that the banks are open for new Business Loans.  The article starts out very hopeful by describing how the new bank lending standards will “underpin” economic growth.  As the data illustrates the positive trend of underwriting standard easement, the reporter waits until the very end to point out that “The trend extended to credit-card, auto and large corporate loans…”
Ironically, large corporate borrowers are the ones fortunate enough with access to the corporate bond market for long-term inexpensive debt capital.  These borrowers have no need for Bank Loans unless they are making an acquisition or have a short-term borrowing need that was not accounted for when budgets were formulated for the upcoming fiscal year. 
Most readers of this blog are small business owners.  Small business owners end up being the ones with very limited options when it comes to Bank Financing.  Typically under pressure for immediate financing, these businesses are more likely to be rejected while going through a bank’s underwriting process for a multitude of reasons related to risk, balance sheet, and other financial issues.  Undoubtedly the first and foremost priority of banks is compliance with banking regulators which is discouraging to these enterprises.  The demographic relies on second tier financing companies like Capstone Capital Group, LLC to help with Working Capital and Contract Funding requirements.
The article goes on to say that small businesses have been hesitant to borrow because of uncertainty related to the Affordable Care Act and rising taxes.  On the contrary, most companies want to grow regardless of the regulation coming out of Washington D.C.  The reason why Small Business Funding have been trending down is that more and more banks are not able to offer them.  As a consequence, Alternative Financing has been the driving force that is providing working capital to small businesses.  This financing comes in the form of Factoring, Purchase Order Funding, and Trade Finance solutions.  Clients who are able to use these funding and financing techniques are growing and thriving regardless of the economic environment.  It is one of the true bright spots in the uneven economic recovery we have all experienced from time to time over the last six years as we run our business operations and try to grow.

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