At one time or another, almost every business will find themselves in need of a quick infusion of short-term working capital. Trying to obtain a traditional bank can be a lengthy process and can often result in denial. Even if you can be approved, you may not be able to wait out the process or it may not be the best option for your business. Everything from a business emergency to an unforeseen golden opportunity can have a business owner looking for an immediate source of funding. There are a variety of alternative finance options available. Two common options are unsecured loans and invoice factoring. If you’re trying to decide between these two options, it’s important to understand how they differ.

 Invoice factoring

Unsecured Loans

Much like the name implies, an unsecured loan does not require any collateral. This type of funding approved solely on the creditworthiness of the business which means they must have a relatively high credit score. Unsecured loans are riskier for lenders and often come with a high-interest rate. The business must provide detailed documentation that their incoming revenue will be sufficient to cover the monthly payments for the life of the loan. The loan duration is typically shorter than a collateral-based or secured loan. 

Invoice Factoring

The biggest difference between an unsecured loan and invoice factoring is that factoring is not a loan. With invoice factoring, current, unpaid invoices are sold to a factoring provider at a discounted rate – typically 70-90 percent of the face value. The payment of those invoices is then made directly to the factoring provider. Once the payment has been received, the remaining balance is sent to the business minus a small fee. This provides the business with the cash they need quickly and efficiently without taking on additional debt.

How Do You Decide Which Option is Best?

Here are some things to consider when trying to determine which would be the best type of funding for your business.

Are you a B2B or B2C business? – Who your customers are is one of the most important factors when deciding between an unsecured loan and invoice factoring. A business that invoices other businesses may be eligible to receive either type of funding. Businesses that invoice customers or collect payment at the point of sale are not eligible for invoice factoring.

Length of Time in Business – Either funding option is going to be difficult for a start-up business to obtain, although invoice factoring may be the better possibility. While factoring companies do consider how long you’ve been in business, that is not the sole deciding factor. They also take other things into consideration, such as the creditworthiness of your customers whose invoice you want to sell to the factoring company. Providers of unsecured loans typically require up to six months of bank statements documenting regular deposits.

Recent Financial Difficulty – Unsecured loans and invoice factoring are funding options for businesses experiencing a working capital shortfall. While both options are meant to help businesses that are having difficulty obtaining a traditional loan, each does have its own requirements for approval. For an unsecured loan, a business needs to carry a positive balance in its bank account and have no more than two negative daily balances in a single month. 

As previously mentioned, invoice factoring companies base their determinations on the creditworthiness of those customers who owe payment of invoices to the business. Provided the business submitting invoices for factoring hasn’t experienced extreme financial difficulty and works with reliable customers, a negative balance or two in its bank account will not prevent approval.

business loan capital

Working Capital Without Debt

Although not every business can qualify for invoice factoring, it can be a great way for B2B businesses to maintain consistent cash flow without taking on additional debt. While we specialize in invoice factoring, Capflow Funding Group will work with you to find the best funding solution to provide your business with immediate working capital. We service many different industries with a variety of different funding needs. Contact us today and find out how invoice factoring can help grow your small business.

 

While it is a common belief that many small businesses fail in their first year, according to the Small Business Administration Office of Advocacy, that simply isn’t the case. Their 2018 Frequently Asked Questions contains numerous detailed statistics involving small business success and failure but the bottom line is that about 80% of them survive the first year. That figure declines as businesses reach the five and ten-year mark. About 50% stay in business for more than five years and only about one third are still in business beyond their 10 year anniversary. While there are a variety of factors contributing to small business failure, alternative finance can provide the capital needed to avoid some of the most common reasons small businesses close up shop.

fast working capital solutions

Identifying Market Demand

This is one of the biggest reasons for small business failure. Some business owners will launch a new product or service without first researching if there is a need for it. Others will build their entire business model without first determining if there is sufficient market demand for what they are offering. In many cases, this happens because there is limited working capital, forcing business owners to choose between making the investment to research the market demand or just forging blindly ahead. No amount of working capital can sustain a business that doesn’t have a solid market. However, there are alternative finance options that can provide the capital necessary for proper market research to effectively expand offerings and promote business growth.

Inadequate Management

Often with a small business, the owner is a management team of one with only a minimal workforce to oversee. As the business grows, so does the workforce. Management must ensure that applicants are vetted properly, only qualified candidates are hired, thorough training is provided and that the workforce is properly supervised. 

Although the business owner had the skills and knowledge to create an initially successful business, they may not have the strong management skills necessary to sustain that success. It can become necessary for the owner to invest in business coaching or training to develop proficient management skills or hire another management level staff member to handle these responsibilities. Whichever path the business owner takes, it’s important to invest both the time and money into ensuring the perfect manager or management team is put into place. If a lack of funding is keeping that from happening, alternative finance could be the perfect solution.

Marketing Deficiencies

In today’s digital marketplace, effective marketing is more important than ever to make sure your business stands out among your competitors. Many business owners lack the time and the skills to do the reach necessary to reach and connect with the right audience. Outsourcing a business’ marketing is an expense many business owners fail to establish a realistic budget for and as a result, their marketing efforts fall short. Cutting corners when it comes to marketing will almost certainly put your business on the path to failure. There are alternative finance options that can help fund effective marketing campaigns to keep your business on the road to success. 

alternative financing group

Alternative Finance Can Provide Consistent Cash Flow

Having a consistent reliable cash flow is key to avoiding these and other factors that could cause small business failure. Most small businesses experience working capital shortages from time to time that can leave them vulnerable. Alternative finance can provide quick, short term cash flow solutions to keep your business moving forward.  

 CapFlow Funding Group is dedicated to providing the short-term working capital you need to keep your business growing. We will work with you to find the best funding solution for your business. While CapFlow Funding Group specializes in factoring, we can also connect our clients with other alternative financing options that may be better suited to their business needs. We service many different industries with a variety of different funding needs. Contact us today and find out how invoice factoring can help grow your small business.