Managing rapid growth is crucial for the long-term success of any business, for several reasons. When a business experiences rapid growth, it may struggle to allocate resources effectively. Without proper planning, the business may overcommit resources to a particular area, leaving other areas underfunded and potentially compromising the long-term stability of the company. Furthermore, rapid growth can put a strain on a company’s cash flow. Businesses may need to invest heavily in new equipment, facilities, and human resources to keep up with demand. Without careful planning, this could lead to cash flow problems, which could ultimately jeopardize the business’s future.
Overall, managing rapid growth requires careful planning, resource allocation, and an eye on the long-term goals of the company. Failure to manage rapid growth can lead to issues that could jeopardize the future of the business.
There are several steps that businesses can take to manage rapid growth effectively:
1. Develop a Strategic Plan: A strategic plan should outline the company’s long-term goals and the steps necessary to achieve them. It should include a detailed analysis of the resources needed, potential risks and opportunities, and a timeline for achieving milestones.
2. Focus on Cash Flow: Managing cash flow is critical during periods of growth. Businesses should develop a cash flow forecast that considers projected income and expenses, as well as potential risks and opportunities. They should also explore options for financing growth, such as bank loans or venture capital.
3. Hire the Right People: Rapid growth often requires hiring additional staff. It’s important to ensure that new employees are the right fit for the company’s culture and have the skills necessary to contribute to the growth of the business. A robust recruitment process can help to identify the best candidates.
4. Invest in Technology: Technology can help businesses to manage growth more effectively. For example, investing in automated systems can streamline processes, reduce errors, and increase efficiency. Technology can also provide insights into customer behavior and market trends, which can inform business decisions.
5. Maintain Quality Control: Maintaining quality control is critical during periods of rapid growth. It’s important to ensure that products or services meet the same high standards as before the growth period. This can be achieved by implementing quality control processes and regularly monitoring the quality of products or services.
6. Keep Communication Open: Communication is key during periods of rapid growth. It’s important to keep employees, investors, and customers informed about the company’s progress and plans. Open communication can help to build trust and loyalty, which can be critical to the success of the business.
Alternative financing can help manage rapid growth by providing businesses with access to capital quickly and easily, without the need to go through traditional financing channels, which can be slow and cumbersome. By accessing alternative financing, businesses can invest in growth opportunities, hire new staff, and purchase equipment, which can help them to manage rapid growth more effectively. Here are some examples of alternative financing options that can help manage rapid growth.
Factoring involves selling outstanding invoices to an alternative financing company in exchange for immediate cash. It can be an effective way to improve cash flow and access capital quickly. This type of financing can be an excellent option for managing growth because it provides businesses with immediate cash flow without adding to their debt burden. It can help companies to maintain operations during periods of growth, pay suppliers and employees on time, and invest in growth opportunities.
Revenue-based financing involves raising capital in exchange for a percentage of future revenue. This type of financing typically involves a revenue-sharing agreement rather than fixed payments, which can be beneficial for businesses that have fluctuating revenue streams. This allows businesses to make payments that are tied to their revenue, which can be a more sustainable way to manage debt during periods of growth. Additionally, revenue-based financing often does not require collateral or personal guarantees, making it a less risky option for businesses.
With their stringent requirements and high-interest rates, small to medium-sized businesses are having a hard time securing a loan from traditional banks. Good thing that there are alternative financing options that businesses now can avail of to get the funding they needed.
What, then, is alternative financing? Alternative financing means obtaining funding from non-traditional funding or non-bank institutions. It has a different process of approving credit or funding, and the terms and conditions are different than those of a traditional bank. It caters to businesses of all magnitudes but small to medium-sized businesses could leverage the advantages that alternative financing brings.
While alternative financing has been around for quite some time already, there are still some misconceptions about it due to a lack of exposure to the products. Let us discuss here to dispel these misconceptions.
Small to medium-sized businesses are wary to try alternative financing because of the myth that they need to have high margins to be able to have access to these kinds of financing. This is definitely not the case. An alternative lender caters to businesses of all sizes, including small and medium-sized enterprises. Others even prefer small businesses as clients. Don’t let your current business margin faze you!
This myth is the one that stops small to medium-sized businesses in their tracks. But the truth is, alternative financing employs a more streamlined process. While traditional banks would require good credit standing, some alternative financing would not even look at credit scores in screening your business. Some would only require a list of your current customers, or even expected revenue streams. Seeing as these requirements are not difficult to provide, it’s easy to say that small to medium-sized businesses could opt for alternative financing easily.
Traditional banks usually have regulators that oversee their business. Seeing as these alternative financiers are not banking institutions, it’s easy to understand why many would think that they are unregulated. However, this is far from the truth. Transactions involving alternative financing involve contract and commercial laws and require adherence to federal and state laws regarding financial transaction disclosures and other regulatory issuance.
Credit scores pertain to your ability to meet your obligations to your creditors. A good credit score means that you were able to pay your dues on time and maintain a good record with your banks. Credit score entails your ability to pay your debts; alternative financing on the other hand is revenue-based financing, without the business incurring debts. Since there are no debts involved, transactions involving an alternative lender would not in any manner affect your credit score.
These alternative financing options fill the gap that traditional banks leave: they provide the much-needed funding for small to medium-sized businesses that are not qualified to avail loans from traditional banks, or even if qualified, are unable to do so due to a myriad of factors. It gives these businesses a lifeline that they can hold on to to be able to pursue their business goals, as well as access to additional funding for any immediate or urgent needs of the business. This is why these common misconceptions should be put to rest so more businesses would be encouraged to try and explore these alternative options.
There are already lots of alternative financing options out there that businesses can consider. Bearing in mind what’s best for the company. Here are some options:
Invoice financing – this alternative financing involves the sale of a business’s unpaid invoices to factoring companies. They pay a certain percentage of the invoice amount to the business.
Merchant cash advance – under this financing, the business owner receives a lump sum amount from the financier. In return, the business owner will pay the financier a certain portion of its revenue from credit card and debit card sales.
Credit card splits – in this financing, businesses can have a credit card split agreement where the financier will provide a lump sum amount for the business’ urgent funding needs. In return, the financier will have a portion, or “split,” on payments made to the business using a credit card.
These are but a few examples of alternative financing that are available for businesses. Moreover, it is not uncommon nowadays for banks to partner with alternative financing providers. This way, businesses need not navigate on their own to find the best funding that would suit their needs. For businesses, now is the best time to explore and get to know more about these alternative financing options.
Like any aspect of society, the financing industry experiences fast-paced changes. Before, businesses turned to traditional financing institutions such as major banks to fund their capital expansions. However, many businesses still were unable to access this kind of financing. As such, in the past few decades, new and non-traditional financing industries emerged to address this gap. While alternative financing has been around for quite some time, it’s stepping into the spotlight nowadays because of the more stringent requirements and higher interest rates that banks are imposing. This is expected to continue for quite some time, considering that the economy has been experiencing some contractions recently, and these contractions are expected to pervade at least for the time being due to different factors. What, then, is alternative financing? What are the different funding options that businesses can consider? And lastly, what’s new with the alternative financing industry this year? Let us dive in.
Alternative financing pertains to funding sourced from non-traditional financial institutions like a bank. Unlike traditional funding institutions, alternative financing companies have more relaxed requirements, shorter or more variable tenors, and are purpose specific.
The realm of alternative finance offers lots of advantages, especially to small businesses. It serviced the segments that traditional funders are unable to cater to due to certain restrictions, such as requirements for collateral, credit scoring, and interest impositions.
There are different funding options that businesses can explore. Each has a different offering and can suit a wide array of business needs. Here are a few examples:
These are just some examples. Innovative financing options emerge in a quick fashion, driven by the need of businesses.
Equipment financing offers businesses the ability to acquire necessary equipment without having to bear the financial burden of paying for it upfront.
While it’s true that alternative financing has been around for quite some time, we will find that this new year still has a lot in store for businesses to look forward to, may it be in the line of service improvement, or use of advanced technology.
Finance industry leaders agree that the alternative finance industry will see growth this year. With more businesses looking for alternatives to banks to fund their ventures, alternative financing will be their next option.
On the part of the funders, technology shall play a bigger role in optimizing their operations and further improving service. While there is a predicted dip in the tech industry this year, odds are optimistic that it will be overcome this year. Nevertheless, the alternative industry’s use of technology will bring more benefits to businesses and the industry.
Alternative financing is funding provided for businesses outside of traditional bank loans. Alternative lenders offer a range of financing products with flexible requirements. Traditional bank loans tend to be a lengthy and difficult process to qualify for. Fortunately, there are other opportunities available for businesses with some alternative financing strategies.
Invoice factoring is an alternative financing process where a business sells their invoices to a factoring company. In exchange for selling their invoices, the factoring company advances a large percentage of the money owed to the business. They also directly manage payment with your customers. Once the invoice has been completely paid off, the factoring company will send you the remaining balance, minus a small factoring fee for their service.
Invoice factoring provides businesses with immediate, ongoing cash flow. This will allow businesses to meet their short-term financing needs instead of having to wait 30-90 days to receive payment on invoices. Furthermore, credit score, collateral and loan history are not a major factor in getting approved for factoring. This makes receiving funding much faster and more flexible.
Crowdfunding is another alternative source of funding that allows for businesses to raise money from investors. Through the use of social media and crowdfunding websites business owners have the potential to meet investors and raise funding. This strategy allows businesses to raise money without resulting to venture capital investors. However, if the funding goal is not met, any finance that has been pledged will be returned to the investors.
With crowdfunding, businesses rely on marketplaces to provide funding for their operations.
With a merchant cash advance, an alternative finance company provides businesses with a lump sum upfront, which is then repaid with a percentage of the business’s sales. This option is best for small businesses that need immediate capital. A traditional MCA is structured where the provider deducts a daily or weekly percentage of your debit and credit card sales until the advance has been fully repaid. This funding can be provided within 24 hours and repayments can be adjusted according to how your business is performing.
Another type of alternative financing strategy is revenue-based financing. Revenue-based financing is a loan that a business pays back with a part of their future revenue. This strategy helps businesses successfully raise the capital needed without sacrificing their equity or any collateral. It also does not involve interest payments – repayment is a predetermined amount plus a flat fee. Monthly payments increase or decrease to match the natural fluctuations of a business, meaning you will not be burdened by payments you cannot afford.
Benefits of revenue-based financing include it being cheaper and more flexible than other funding options, your business will retain more ownership and control of your business, there are no personal guarantees, payments are flexible, you may have a faster funding timeline, and more.
When a company needs working capital, typically they will reach out to traditional banks to try and secure a small business loan. What many companies learn as they go through the small business loan application process, is that it is not easy to receive approval. It takes a significant amount of time, effort and documentation collection to even apply for a small business loan.
Many companies who follow through with a small business loan application process, find themselves with a rejection after all that effort and time spent.
With revenue-based financing options like invoice factoring, much of the application process is handled by the factoring company. The factoring company will require a few important documents. to access an applicant’s company, but the process can be completed in a matter of days instead of weeks or months.
Invoice factoring is a type of revenue-based alternative financing that is oftentimes confused with a small business loan. The reality is that the application process and the financial products are very different.
With invoice factoring, you are selling your current outstanding invoices at a small discount to a factoring company in exchange for immediate working capital for the value of the factored invoices. Typically, a company will have agreements with their customers to pay an invoice in 30, 60 or 90 days. While having a payment schedule with your customers can be beneficial for forecasting expected revenues by quarter or month, actually collecting on those invoices can be much more difficult.
Here is an example of how invoice factoring works:
Company A has an invoice that is valued at $10,000. The factoring company agrees to purchase the invoice today for $9,700 ($300 fee). The advance which for this example is 85% of the invoice value at $8,245, is than debited to Company A’s account. The factoring company then contacts Company A’s customer, collects on the full invoice amount and sends the remaining balance of $1.455 to Company A once collected.
Traditionally, small business loans require more and different types of documentation to achieve approval. With small business loans, an applicant will likely be required to provide documentation on your company’s credit history. As well as your inferred ability to repay a loan. Some of the documentation that may be required to prove revenues and thus capability to repay are sales projections, past loans repaid and current cash flows.
With invoice factoring, they creditworthiness is focused on your customers and not your business. Since the factoring company will be collecting payments for invoices directly from customers, the customer’s capability to pay off the invoice amount is more scrutinized than the company seeking factoring. This is an important distinction. Most businesses applying for financing do not have good credit thus the need for outside capital.
Businesses from all industries, need consistent streams of working capital to be able to meet daily expenses as well as fulfill their daily operations. Depending on industry, the sales or collection cycle on outstanding invoices can be lengthy. Industries that suffer from a long sales cycle, can oftentimes be hampered by their ability to collect from customers.
Industries such as staffing, facilities management, security firms, food & beverage manufacturers, consumer products and many more all operate with 30 to sometimes even 60 days of collection. A business with such a long collection cycle can benefit from the capability of being able to factor specific invoices to manage cash flows.
A company that is considering invoice factoring should conduct thorough research on how factoring works and contact invoice factoring companies that offer flexible terms.
Applying for factoring is not difficult, and most of the application process is performed by the factoring company.
Some of the required documents for review will likely include:
Working with a factoring company can help you get the working capital you are looking for.
Flexible terms, and a consultative approach are the most important factors when considering a factoring company.
The terms to consider mostly center around which invoices can be factored, and what is the agreed upon discount rate for the value of those invoices. Most factoring companies will discuss these options and consult on rates.
Invoice factoring is a financial service that requires a factoring company to collect invoices from the businesses’ customers. Due to this intimate knowledge of your business, and communication with your customers, when researching factoring companies, consider whether their factoring program is consultative and sensitive to your business needs.
CapFlow Funding Group provides a consultative, customized approach to its factoring services. To receive a risk-free complimentary consultation, fill out the quick form on our apply now page. https://capflowfunding.com/apply-now-funding/
Invoice factoring is a financial service that allows a company to sell the value of their outstanding invoices at a discounted price. The factoring company will pay you immediately for your invoices, at a small discount, and then collect on the invoices directly from your customers.
For many companies, invoice factoring is a beneficial service that shortens the sales cycle and allows businesses to collect faster on their invoices than if they had operated their accounts receivables internally.
Running an accounts receivables department can often be time consuming, and costly in-regards to day-to-day cash flows. Cash flow is the lifeline of liquidity in which a business operates and meets its growth objectives. Without working capital to meet normal business obligations, businesses struggle to make sales goals in addition to expansion.
It’s difficult to review outstanding invoices and then make the necessary calls and emails to customers to collect and actualize those revenues. For many businesses, new purchase orders are oftentimes delayed by collections of receivables. This is where a factoring company comes in and provides the working capital a business needs upon the drafting the invoice. The company would then receive the agreed upon value of the invoice in a deposit to their account, and the factoring company would then collect on the invoice value directly from the customer.
Having the capability to collect on invoices faster, provides certain agility to a business that might not have been the case with an internal accounts receivable department. Liquidity is king in providing a business the fuel it needs to actualize expansion opportunities like new facilities, or simply take on more purchase orders due to a more efficient sales cycle.
At CapFlow Funding Group, we work with our customers as partners in their business objectives. We offer a wide range of flexible terms that are designed to provide custom working capital solutions, for your unique business.
We will work with your team and consult on rates, which invoices to factor and more. It’s important to consider factoring with a company that will consult with you 1 on 1 to understand the specific needs of your business, and which invoices should be factored for quicker access to working capital.
