If you’re like most small business owners, sooner or later you’ll need some financing for your business to get it started, get it going, or keep it afloat. Unfortunately, not every business owner knows all the pertinent facts about obtaining sufficient finance for a business, and that’s why some businesses close shop prematurely.
So let’s clear the air and get rid of all the myths that are still prevalent in the small business community, even though the Internet can provide a lot of information.
- Banks are the only viable source of finance for a business. This is obviously not true that sometimes it’s hard to fathom why some people still believe this. Think about it. You can start a small business right now by delving into your savings, getting a second mortgage, and borrowing from your friends and family.
If you can’t get a loan from a bank, you can go to credit unions. You can go online and use crowdfunding. Or you can go to any of the factoring companies that offer surer and faster ways of obtaining additional financing. These alternative ways of getting funds for a business are now so popular that some experts are wondering whether or not small businesses still need banks.
- If I don’t have a good personal and business credit score, no financial institution will provide me with financing. That’s not true at all, because factoring companies don’t really care all that much about your personal credit score.
In account receivable factoring, the factor advances you the cash while waiting for your customer to pay up in full. It’s all up to your customer whether the factor gets its money back, so it’s the credit score of your customer that’s much more important. The factor has to approve of your customer. So if they think the customer to whom you’re offering generous terms don’t get their approval, then the invoice generated by the transaction won’t be able to get an advance from the factor.
- Alternative lenders such as factoring companies charge too much for their services. It all depends on what you mean by “too much”. When compared to the interest charged in a traditional bank loan, then perhaps this is somewhat true.
But a simple comparison between financing fees doesn’t paint an accurate portrait of what’s really at stake. What is on the line is your future profit. If you rely on banks and they don’t come through, then you may lose out on a deal that will give you a profit margin of 30%. But accounts receivable factoring is easier and faster to get, so even if you have to pay as much as 10%, then you still have 20% as profit.
In other words, relying solely on traditional bank loans can cost you the entire 30% profit margin instead of just 10%. And that means the bank loan is actually much more expensive for you!
Read up on alternative business to business finance sources and you’ll find that banks aren’t your only option. In fact, in some situations they shouldn’t even be your first option at all.