NeeBo Capital Blogs – Page 11 – The Best Info For Factoring…

Invoice Factoring for a Service Company

Are you a service company? It may seem like a simple question. If you offer services for a fee, then essentially you are a service company. And if you need extra funding, then perhaps invoice factoring is a viable choice.

How Does Invoice Factoring Work?

In many cases, when you offer a service, sometimes your client is a company that doesn’t pay right after you’ve completed the work required from you. You then issue an invoice instead which determines the date when the client should pay what it owes you. Usually payment is due in 30 days, but sometimes it can be longer.

With invoice factoring, you engage the services of a factor in lieu of a lender. The factor takes in your invoices and then advances you about 80% of the value of the invoice right away. When your client finally pays the invoice, you then get the rest of the money from the factor after the factor’s fees have been deducted.

It’s a fairly straightforward process, although there are variations. For example, it can be a continuing process involving all your invoices. Or perhaps only a few select invoices are involved, and it may even be a one-time transaction.

Benefits of Invoice Factoring for Service Companies

The most obvious benefit of invoice factoring for a service company is that your company gets the bulk of the payment right away, which can then be used for working capital. This is the money you can use to pay for your overhead and utilities, cover the payroll, and buy or maintain equipment and supplies. You won’t have to wait for a month to get the payment from your clients and as a result, your working capital won’t get depleted.

In addition, you get the approval for the invoice factoring service quickly, unlike when you apply for a bank loan and the entire process takes too long and the requirements are too stringent.

With invoice factoring, factors tend to focus on the ability of your clients to pay, so your own credit rating is usually immaterial. And because of this, the approval rate for invoice factoring is much higher and the approval itself comes more quickly. It’s not strange to get the approval within a matter of days.

So if your business is in dire need of money, invoice factoring will ensure you get your funds fast.

Additional Benefits

As a service company, you may realize that the services of a factor can also help streamline your business as well. For example, in most cases the factor takes over the collection of the payment. This can be a definite advantage because it frees your service company from having to establish its own collections department. At the very least, you spare your current employees from having to contact clients and collect the payment from them.

Another benefit of invoice factoring for a service company is that the factor can tell you which of your potential clients have a good history of paying in full and on time. This can save you from doing actual work for clients who don’t pay on time.

How Medical A/R Lenders Help the Health Care Industry

It stands to reason that businesses in the various healthcare subsectors—those involved in immediate care, diagnosis, medical technology, and medical IT for example—all require funding on a regular basis. But that’s easier said than done. The healthcare industry as a whole isn’t exactly attractive for prospective lenders and medical A/R lenders can truly be helpful in this regard.

Why Many Lenders Avoid Healthcare Businesses

It’s not difficult to understand why quite a few small businesses in the health care industry can’t get the funding they need from traditional lenders such as banks.

For one, healthcare businesses don’t have much in the way of assets. While they may use numerous pricey equipment to help them care for patients, the truth of the matter is that they don’t own them – they’re leased.

Another reason is that many companies have difficulty in billing and collecting accurately. That shouldn’t be surprising, since healthcare billing can be very complicated especially in light of the Affordable Care Act. And it’s a well-known fact that insurance companies are notorious for not paying the full amount billed to them.

Finally, there is the ongoing trend of increased mergers and acquisitions in the industry. Companies are merging and consolidating so that they can provide the widest breadth of service for patients. Companies which specialize only in certain tasks may find themselves out in the cold in the growing competition for patients.

How Medical A/R Lenders Help

But while traditional banks may be hesitant to lend to small clinics and hospices, medical A/R lenders are filling in the void. Small businesses in the healthcare industry have one obvious asset: their accounts receivable.

A/R lending is quite easy to understand. A clinic may have to wait for at least 30 days (and often for much longer than this) to get their money from the insurance carrier after they’ve treated a patient. This means the clinic often has trouble getting the working capital they need to pay off employees and buy medical supplies such as bandages, syringes, gloves, and medicines.

The A/R lender expedites the payment process by advancing 80% (this percentage varies depending on the lender) of the accounts receivable to the clinic right away. Then when the payment arrives in full, the clinic gets the rest of the money minus fees charged by the lender.

Additional Advantages

This setup offers a lot of benefits for clinics and other companies on healthcare. For one, the clinic doesn’t have to hire people to collect payments from recalcitrant insurance companies. The clinic employees can then instead focus on its most important job of providing quality care for the patients. It is the A/R lender who usually collects the payment on the clinic’s behalf.

This can even help clinics identify insurance companies with a poor payment record. In A/R lending, it’s the payer’s credit history which is crucial, and the lender can identify which insurance companies should be avoided in the first place.

With medical A/R lending, various small clinics and other companies in healthcare can get the funding they need at the time when they need it the most.

Working Capital Loans for Utility Companies

There was a time when giant utility companies monopolized the industry and charged fees as they saw fit. But not anymore. Because of laws passed in reaction to the Arab oil embargo in the 1970s, privatization of energy production is now possible. Companies can start producing energy for the mass market, and even small businesses can get in the action.

Huge Firms Leading the Way

Since major utility companies still control the vast majority of energy in the country, it stands to reason that large firms that offer cleaner and more affordable energy lead the way towards improved energy production.

In Georgia, a company called Georgia Solar Utilities (GaSU) is building an 80-megawatt solar farm. Its long range plan is to develop 2 gigawatts of solar power for consumers. The law mandates that the existing utility company Georgia Power buys the energy it produces, but its buying price was deemed too low by GaSU. Because of this, GaSU plans on selling their energy to the consumers directly.
In Colorado, a company called PanTerra Energy is registered as a geothermal utility. Its plan is to sell geothermal heating and cooling directly to owners of public and commercial buildings.

Geothermal pumps take advantage of the stable ground temperatures for heating and cooling, and they use 70% less electricity than do conventional air conditioners and boilers.

In California, the Gen110 Company is also trying to convince more homeowners to generate their own electricity through the installation and use of solar panels. Homeowners can save thousands of dollars each year, because they don’t have to pay the transmission and distribution fees that traditional utility companies charge to deliver the power from their power plants.

A Small Business Case Study

Even a small player can participate in this energy revolution, as long as it has sufficient working capital. One good example of this is PeakEnergy LLC, which was founded back in 2000. Its purpose was to help energy providers such as utility companies to make use of standing generators at private companies during periods of peak demand for energy.

Because of the service this small business provides, utility companies didn’t have to build more power generation and transmission capacity to meet the energy demands for these peak times. Nor do they have to charge higher prices for additional power for these peak periods. Even the owners of the backup generators benefit because they get a credit when their standby generators are used.

The founder of PeakEnergy was able to start his business with a grant from the American Public Power Association, along with a working capital loan guaranteed by the SBA. The working capital loan was used to develop the custom Internet-based software, and also to buy the required hardware used to connect with the generators. With this system in place, energy service providers can control multiple standby generators from their respective dispatch centers.

As you start and grow your own small business utility company, working capital will always be an issue. Get a working capital loan so you can make sure you have enough purchasing power for your own small business.

Independent Power Producer Financing

On the face of it, obtaining independent power producer financing shouldn’t be all that difficult. Becoming an independent power producer is actually encouraged by law, and today it is an integral part of the Green Movement.

A Short History of Independent Power

It all started during the 1970s when the Arab oil embargo caught the US by surprise. The prices of gasoline and other energy sources increased dramatically because of the short supply, and as a response the US Congress enacted the federal Public Utilities Regulatory Policy Act (PURPA) in 1978.

The new law aimed to diversify the sources of energy and to boost efficiency, and the electrical utility monopoly on power generation came to an end.

The Energy Policy Act of 1992 (EPAct) boosted matters further, as it lowered the cost of electric utility services throughout the US. Because of the EPAct, the independent energy industry grew significantly, and by 2002 about a third of all the power plants in the US were operated by independent energy producers. Even today 7% of the power in the US is provided by non-utility power producers.

Benefits of Independent Power

Because of these enacted laws, a lot of interest was focused on renewable energy, and this interest has not totally disappeared. Developments in solar and wind energy technology came about, and now people are more aware of these alternative sources of energy.

The benefits of these sources of energy include:

Less global warming, which affects the weather, the crops, and the health of people all over the world
Reduced pollution, which obviously makes the country a healthier place to live in
Domestic economic development, which strengthens the economy and provides jobs
Less dependence on foreign energy sources, which may hold the country hostage to the demands of other countries

Nowadays, independent power producers operate all over the world. Asia is an obvious example, but nations in Central and South America, Africa, and Eastern Europe have also followed suit. Because of independent power producers, commercial wind energy is now the leading new source of power generation in the world.

Financing Independent Power Production

Yet despite all the benefits and “glamour”, financing can still be somewhat iffy for these companies. That’s because government permits must be obtained before such a project can be constructed and operated. Financing usually comes from banks and private investors. Millions of dollars maybe poured into such a project. But there’s no way the costs can be recovered if the permits are not acquired or if the project runs out of money midway.

There’s also another requirement before financing can be acquired, and that’s the power purchase agreement. This agreement states that the electrical utility must buy all the energy that the independent power plant produces. The independent power producer must get this agreement before banks would commit funds to a project like this.

In other words, the local government (which usually owns the electrical utility) must provide assurances that the investment in the independent power production will be worthwhile. This is the only way that funds can be raised for the project.

Working Capital for Machinery Leasing Companies

If you’re starting a company that offers machinery and equipment which other businesses can lease, then you will most certainly need a fair amount of capital. Other businesses lease equipment because for the most part these things cost a lot of money to buy. As a machinery leasing company, you can buy these equipment in bulk so you can enjoy significantly lower prices than those offered at retail.

The Need for Working Capital

But even after your initial purchases, you may find that you still need working capital to run your leasing company.

You’ll need a place of business for your office, and you need to pay rent and utilities.
Your company will need to meet payroll on a regular basis, and that’s an expense that you cannot avoid.
You’ll also need adequate space for all your equipment so they can be protected from weather damage. These warehouses will cost you money.
You may also be required to get insurance. You may need liability insurance to provide coverage should someone get hurt through the use of your equipment.
You’ll also be responsible for the maintenance of the equipment. You’ll need to hire technicians to oversee maintenance and repairs. In addition, you need proper tools for your technicians, along with spare parts to replace broken machinery parts.
Your customers may need more types of machinery which you have to purchase. In addition, some types of machinery may use additional or extra attachments and accessories which you will also need to buy.

As a leasing company, it would be best if you and your clients are clear regarding the fine print of the leasing contract. Both parties must agree as to the payment and the schedule, who deals with the maintenance, and whether leases can be terminated early.

Procuring Working Capital Loans

If your working capital is insufficient, you may find your business unnecessarily restricted and unable to grow. Because of this, you may want to consider securing a loan to add an infusion of cash for your working capital.

For example, you can get a merchant cash advance so you can buy more equipment that other businesses can lease. Your funding partner may then get a percentage of the fees paid by your customers until the advance and the premium for the advance are all paid up.

You may also get a form of inventory financing, or perhaps a loan with your equipment as collateral. The amount you can get will depend entirely on the value of our equipment. You may even use property and real estate, such as the land and the building housing your equipment, as security for the working capital loan. However, if you’re unable to meet the payment, your equipment or your property may be seized to cover your debt.

There’s a lot of money to be made by offering equipment that other businesses can lease. Just make sure you have the working capital you need so that your own company can run smoothly.

Grocery Stores Financing

It’s safe to say that as a small business owner, you probably don’t have the means to compete with the likes of Wal-Mart. You’ll have to be smart and make sure you have all the popular items your customer base is looking for. And sometimes that may mean additional financing.

Uses for Grocery Stores Loans

There are many ways you can use the extra money so you can improve services and eventually improve profits as well.

You can make sure you meet your payroll, and you may even want to think about offering higher wages than what your competitors offer. This way, you can pick and choose the most helpful and polite employees for your grocery store.
You can renovate your store so that it will look more appealing to shoppers. You can also expand the store so you can stock more items that your customers want to buy.
You can set up your own website as a marketing tool for your grocery store. Your site can offer news about your merchandise and about any promo you’re running. You may even use it to set up a delivery service, which will be greatly appreciated by elderly or handicapped customers.
You’ll also be able to use the money to stock up on the most popular items your customers are buying.
You can buy, upgrade, or maintain your equipment, such as your walk-in freezers. For grocery stores, having the right equipment in tiptop shape is crucial for your success.

Where to Get Grocery Store Financing

The most obvious sources of financing for your grocery store are your own savings and whatever your friends and family can chip in as investors. You may also want to try getting some funding from your bank as well.

After that you can still make a deal with alternative lenders to get the financing you need. For example, if you own the building where your store is located then you can use that property as collateral for your loan. The downside is of course, if you can’t pay on time, your bank may end up owning your grocery store instead.

Another common form of financing is the merchant cash advance. You may get the financing you need right away, and you can repay by reserving a percentage of your daily credit card revenues for your lender. This means you don’t have to worry about coming up with a specific amount of money each day to guarantee that you’ll meet your loan payments. If it’s a slow day, then you don’t have to pay as much for the day.

To get these loans, you need to prove that you deserve them and that the lender isn’t wasting their money. That means you need to show your research on how you chose your location, the breadth of your managerial experience, and how you choose and present your merchandise. These are the factors which will influence the lender’s decision to provide you with the financing you need.

Farming Working Capital Loans

As a farmer, perhaps you may need additional capital to buy, construct, or remodel facilities so you can expand your business. You may also be contemplating the purchase of new farming equipment to boost the efficiency of your operations. These are all great, and they indicate that your farming business is thriving.

On the other hand, it may be difficult to do all these if you lack the working capital you need to run your farm smoothly. It’s not always easy to compute the amount of working capital you need. If you don’t have enough, you may need a working capital loan to support your farm, and that’s not always easy to get.

What is Working Capital?

Technically speaking, working capital is what you have once you compute your current assets (the cash you have, the value of your crops and livestock, and your accounts receivable) and then deduct from it your current liabilities (accounts payable, along with any debts and interest you need to pay for the next 12 months).

A good amount of working capital to have available is about 15% of your farm’s gross revenue, although it may be more comfortable to get this to up to 25%. So if your farm generates $300,000 a year in gross revenue, then your working capital on hand should be at least $45,000 (the bigger it is, the better).

It’s crucial that you have enough working capital on hand if you want your farming operations to run smoothly. Your working capital gives some measure of protection should something go wrong.

For example, disease may spread through your livestock, or perhaps climate change is adversely affecting the volume of your crops. Having enough working capital also means you don’t have to take a loan for which you will have to pay interest.

Protecting Your Working Capital

One way to preserve your working capital is to be extra conscientious whenever you’re making a serious purchase with your money. Major expenses affect your working capital, so you need to consider each purchase carefully.

For example, you should think carefully if a purchase is necessary at this time or if it can be delayed. If you’re buying new farming equipment, you may want to see if a used equipment can be just as good so you can save money. You may also want to have a major purchase financed so you preserve the cash you have ready for contingencies.

But some farmers may have problems maintaining some semblance of working capital throughout the year, especially when the farm only gets two or so huge paydays per year.

Obtaining Farming Working Capital Loans

Not all banks are enthusiastic about lending money to farmers, especially when the farm is small. But some lenders do focus on this industry.

Different lenders will have different conditions regarding the loans. Often you will need to secure the loan by offering real estate and farming equipment as collateral. Repayment conditions may also vary with some asking for regular payments while others may want to get half of all revenues as they come in.

These loans can be used for a wide variety of purposes. If you need working capital for your farm, you may want to get a loan as quickly as possible.

Small Business Loans for Restaurant Business

Opening a restaurant is one of the most common small business ventures because it seems simple enough. Instead of working daily to feed your family, you can just expand it a bit and feed hordes of people with the meals you prepare. People need to eat after all, right?

But then again, you’ll find that running a restaurant business is not really that easy. Funding for startup restaurants is going to be a problem even right at the start, and when you’re getting your stride with your operations you may stumble every now and then due to problems about marketing and customer interest, supplies, and equipment. Even choosing a location for your restaurant can be a challenge.

So how can you get small business loans to finance your restaurant? Here are some ideas:

First of all, you need to demonstrate your confidence in your eventual success by using your savings on your restaurant venture. About 80% of all startups are at least partly financed by the founder’s savings. Others also use their credit cards as well.
Then you can approach your family and friends. About a third of all startups go this route. Aside from wanting to see you succeed, people close to you may also enjoy the idea of a family restaurant where they can hang out.
You can then apply for an SBA-backed loan. The local SBA office can give you a list of nearby banks which have a history of lending to restaurants.
There are several main requirements you’ll have to meet first though, if you want to get a loan from a bank. You’ll need to prepare your paperwork, and that includes a comprehensive business plan. You must have an excellent credit rating and preferably some experience in the industry.
In all likelihood, the bank will also ask if you can get a second mortgage on your home.
If you own the restaurant property outright, you may use that property as collateral for your loan.
You can also use your equipment as collateral if you own them outright.
You can also try to get some alternative funding sources, such as factoring or merchant cash advances. For example, you can get a $10,000 loan, and the lender can then get 10% of your daily credit card revenues until the loan and the interest is fully paid up.

The advantage of this repayment schedule is that it accounts for any seasonal changes in your sales. So even if you’re undergoing a period of disinterest from customers (maybe you cater to students and it’s the holiday season) you can still surely make your loan payments.

The main drawback here is that the percentage will be taken from the sales no matter what, so you risk not having enough money left to pay for utilities, rent, inventory, equipment maintenance, and payroll.

Running a restaurant isn’t easy. But with a good location, great food, nice ambiance, and superb service, you can actually succeed only if you have enough money operate the business smoothly.

Computer Repair Services Working Capital

Starting your own computer repair company can be a very profitable venture these days. Most people prefer to buy cheap PCs, and those with expensive machines generally have them repaired instead of replaced when they start to malfunction.

However, you will most certainly need some working capital, especially when you plan to expand your services.

When Do You Need Computer Repair Services Working Capital

You’ll need a place of business, and of course each worker will need a set of tools and basic equipment, especially when they go to the home or office of customers to fix their computers. Aside from your usual screwdrivers, you’ll need testing equipment for motherboards, power supply units, and cables. You may also want to bring along spare parts of the most commonly malfunctioning PC parts so you don’t have to waste time going to a retail store to get the parts you need.

Also remember that your computer repair services business will require some form of marketing, just like any business. This may mean distributing fliers in your neighborhoods. It also means you will need to run your own website where you can post your fees and explain the services you offer.

Once you expand your services, you’ll need even more working capital. Perhaps you have lots of customers and now you need more employees to handle the workload. Each one will require tools and equipment, and perhaps transportation money as well. You’ll need to make sure that each technician is properly trained and compensated as well.

As a computer repair service, your focus may be on a wide variety of gadgets, including laptops, tablets, and smartphones. This will require intensive training for your employees, and more tools and spare parts. All these will require working capital too.

Getting the Working Capital You Need

So where should you go to get working capital? Ideally, you need to save up, and perhaps you can ask family and friends to pitch in with their investments. Banks may not always be the right option if you need working capital for your computer repair services.

Here are some other ideas:

You can apply for capital loans from your local credit union.
You can get a merchant cash advance against the fees you get through credit card payments. For example, you can get a cash advance for your working capital, and you can pay 12% of your daily fees to the lender until the loan and the interest rate is paid. This method of loan repayment offers you a cushion as you won’t have to pay as much when business is slow.
You can also check if you can get some form of inventory financing. You can then buy cables and hardware for much less than what you pay in retail stores, and then you can charge your customers just a little bit more (but still less than retail prices) when you replace malfunctioning computer parts.

It can be very easy to succeed in this type of business, especially when you avoid all the common errors. But you can stall your growth if you don’t have adequate working capital. Make sure have enough money to cover your operational expenses, and the profits will keep coming in.

Small Business Loans for Low FICO Scores

Your FICO score reflects your predicted ability to pay back a loan, based on your own credit history. In general, if you’ve borrowed often before and paid each one on time, then your FICO score will usually be very high. You’ve demonstrated that you are responsible enough to pay back the money you’ve borrowed promptly.

However, if you have a low FICO score because you used to pay late or you never really borrowed money from financial companies before, then convincing a traditional lender such as a bank to provide a loan will be a futile undertaking. Banks nowadays are notoriously tight-fisted when it comes to lending money to high-risk borrowers.

Still, that doesn’t mean that you can’t get the loan you need for your small business. But you may have to consider another approach.

Friends and family. This type of small business loan is very common. After all, you already have a connection with friends and family, and if they trust you then your low FICO score is irrelevant. For small amounts, friends and family may suffice to get you the loan you need.

But there are inherent drawbacks to this type of loan. In general, it’s not always wise to mix business and personal relationships. Your friendships and familial relationships may be damaged should you encounter any difficulty in paying back the loan.

Borrowing with a Co-Signer. If your FICO score is preventing you from getting the small business loan you need, then perhaps you need the assistance of someone who trusts you who has a much higher FICO score than you. Your Co-signer usually agrees to cover the loan amount should you prove unable to pay back the loan according to the agreement with the lender. In this type of loan, it’s as if your co-signer is the one asking for a loan, except the money goes to you.
Using your credit cards. Some people who have a small business simply use their credit cards to fund their operational expenses. The main advantage of this approach is that the money is already available to you, so you can get it quickly and without a fuss. And as your credit card is like a line of credit, you can just borrow the exact amount you need.

However, you’re bound by the credit limit of your credit card. There’s also the inherent danger of mixing your personal and business finances. Your personal credit can take a beating if you are unable to pay your business loan.

Specialty lenders. If you can’t get the loan you need from a bank, you may want to approach specialized lenders who focus on borrowers with poor credit. Often the interest rate can be very high. Also, you may be required to offer some collateral for the loan, such as your car or even your home.

You may get the money you need for your business, but you pay dearly for the privilege and you risk a lot should you fail to repay the loan on time.

These days, banks are no longer your sole source of funding should you need a loan for your business. You can still get the loan you need, even if you have a poor FICO score.