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Oasis in a Cash Flow Desert Four Resources That Increase Small Business
Capital Streams
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For small business owners, an enthusiastic
vision for smooth, steady growth can become nothing more than a mirage once
company cash flow problems begin to heat up.
by Mark Uptain
Contributing Author
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For small business owners, an enthusiastic vision for smooth, steady growth
can become nothing more than a mirage once company cash flow problems begin
to heat up. Most will struggle with the timing of payment from clients or
customers at some point, all while attempting to pay their own bills in a
timely fashion. With all of the best laid plans for rapid flowing cash
streams evaporating down to just a gurgle in the ditch, the potential risk
of joining the ninety-percent of businesses that fail within their first
three years of operation becomes a very sobering possibility.
(article continued below ...)
Many of us would like to operate our companies the same way we do our
personal lives. If we need a new lawn mower, we simply pull out the trusty
credit card, sign on the dotted line and put off worrying about it until
next month. Meanwhile, we enjoy the benefits of the new equipment, at least
for the time being, without it costing a dime. Though in this way we may
seek a certain gratification from owning our possessions, it s really just a
trick we play on ourselves. The above charge now, pay later example doesn't
really convey any kind of real, initial ownership. Instead, it s just a very
common example of a direct loan. The credit card company facilitates a
credit arrangement between you and themselves, and the proceeds of this
extension are directly used and repaid by you, the borrower.
In business, however, whipping out the plastic to cover expenses is
definitely not the best idea. Many have given in to this temptation, and are
paying the heavy cost of damaged or ruined credit. And with that, their
chances of digging out of the hole with other means of financing, which
should have been sought in the first place, are slim to none.
Thankfully, there are better, specially designed cash flow tools
available for businesses that are beginning to feel the scorch of the
capital income desert. Many business owners are unaware of these tools.
Others that are aware fail to take advantage of them. All of them would do
well to at least consider the following:
Purchase Order Financing
- Simply put, this tool is a loan against the future income of the business.
It s designed primarily to provide the cash needed to pay suppliers and
sales-generating business expenses while patiently waiting for clients to
pay their invoices. Similarly, purchase order funding is utilized for the
completion of existing orders by securing materials when working capital is
running short. Once purchase order financing has been successfully utilized
for some time, it usually becomes easier for the business to take advantage
of more economical means of credit.
Equipment Leasing
- With it's one-hundred percent financing, preservation of credit lines, tax
benefits and the ability to avoid obsolescence, equipment leasing is one of
the sharpest and most efficient cash flow tools a business owner can
utilize. Paying a premium in order to own equipment can be a huge waste of
money. What companies profit from is the use of equipment, not the
ownership. Leases can be extremely flexible to meet the custom needs of each
business. Therefore, both small and medium-sized companies can greatly
benefit from them.
Accounts Receivable Financing
- This tool provides a line of credit secured by the company s accounts
receivables. It is a strong method of financing for both short-term working
funds and the permanent working capital requirements of businesses that are
growing. The paperwork is considerably less involved than in more
traditional types of business loans. It is also especially helpful in
providing financing flexibility to firms that are growing rapidly.
Factoring
- This is the sale, at a discount, of a business accounts receivables. It is
not based on the company s ability to repay the money advanced. Instead, it
based on their customer s ability to pay what is owed. Once the factoring
facility purchases the accounts receivables, they assume the responsibility
for collection. It is not a loan, so neither the time in business, nor the
company's debt to equity ratio are a consideration. A business has the
freedom to sell only the AR that it chooses, and is not obligated to
continue to do so. Factoring is an excellent source for additional working
capital needed by both small and startup businesses.
The descriptions above are general, and it is important to understand
that there is flexibility and variation within each lender program. In order
to get educated on the details of these types of tools, and to find which of
them might be beneficial to your situation, talk to a professional loan
broker or a commercial lender representative. He or she will explain the
benefits of each, and help you decide which tools are right for keeping your
business out of the cash flow wasteland.
About the Author:
Mark Uptain is the owner of Regent Business Capital, a loan and lease
brokerage that works with lenders nationwide to help small and medium-sized
businesses get financing. His website
www.EquipmentLeasingSource.com , offers free equipment leasing
information and competitive quotes to businesses throughout the United
States.
July 16, 2005
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