Sooner or later, every small business needs to borrow some money. You may need:
- To manage your cash flow.
- To increase your working capital.
- To have cash on hand to finance growth.
There are many myths that make entrepreneurs and managers believe it is harder than it really is. In reality, it is easier than you think to borrow cash to run your small business. At Summit Financial Resources, we want to put your mind at ease.
Myth #1 – New Businesses Can’t Get a Loan
Getting a traditional loan from a bank requires that your business is two or more years old. You also need to show that you have been consistently making money during that time. Small businesses may have customers and incoming cash even though they are quite young.
For example, professional service firms often begin because the founder has immediate clients. As they grow, they may need to take on employees to keep up with a growing business. Having the working capital to grow may not happen immediately, even if the business is growing its accounts receivable and accounts payable in less than a year.
Invoice factoring and asset-based lending are options for these kinds of businesses. They are based on accounts receivable and the creditworthiness of customers. If customers don’t pay on a net 30 basis, companies may have more money in accounts payable than in the bank.
Myth #2 – I Can Just Get VC Funding
Growing businesses have to determine where they want to get money as they grow. There are two main sources of funding:
- Liabilities – Long-term loans from banks, short-term loans, loans from family and friends, credit card debt. These place a burden on the company to pay off the loan and pay interest. The upside is that the original shareholders or founders don’t give up ownership of the business.
- Owners Equity – Venture Capital (VC) funding, Angel Investors, new partners. These sources of funding seem cheaper in the short run, but they require giving away part of the company. Funding from equity is NOT A LOAN. It is giving away part of the company.
It’s also hard to get Venture Capital funding. In 2013, it was estimated that Venture Capitalists only funded approximately 1-2% of small businesses they encountered. Giving away part of your company is actually very hard.
Myth #3 – Lenders Don’t Care About My Business or Me
It’s true that large banks may not have the time to learn about all the details of your business. Your small business may just be a number with a small amount of money in your bank accounts. Smaller firms like Summit Financial Resources believe that getting to know our customers is key to providing small business lending. We are a small business too.
Invoice factoring uses a company’s invoices as collateral for a business loan or line of credit. Summit Financial Resources provides this service, and it requires us to get to know your business, your customers, and the reason why you want the loan. With this knowledge of your specific company, we provide funding on a case-by-case basis. We develop long-term relationships with clients who get to know us as well as we know them.
Myth #4 – It Takes Time and Red Tape to Get a Loan
Summit Financial Resources is a nimble company. We offer invoice factoring and asset-based loans as business loans or lines of credit that use a company’s accounts receivable as collateral. We can also loan against your inventory and/or equipment. And, we can assess your business information quickly.
We do all of the work to determine the creditworthiness of your customers. Many of our clients are in similar industries – manufacturing, distribution, or service industries such as staffing and transportation. This means that many of our clients have the same customers. We keep a database of those companies, and we can make a decision on how much credit to offer you very quickly.
Myth #5 – My Credit is Too Bad to Get a Loan
Invoice factoring and asset-based lending are the best kinds of funding if you’ve had some trouble paying your bills in the past. Because funding decisions are based on your cash flow and customer creditworthiness, other financial hiccups are less important. You get the loan, but your customers pay us directly.
Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.