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Asset Based Financing
Flexible Terms Get Cash Now
Asset-based Lending (ABL) is a great option for small businesses who have capital needs that they can’t get through a bank or traditional lender. It’s simple in principle: an ABL loan uses your own assets (e.g. – investments, inventory, property, machinery, real estate, etc.) as a security deposit to receive a clearly specified loan. The amount loaned generally depends on the estimated value of your particular assets that are used as a deposit.
Advantages of ABL
- Easier than traditional bank loans
- Fixed payments easy to manage
- Fixed interest rates
- Failure to comply only results in loss of deposited items
Key Takeaways
- Asset-based lending involves loaning money using the borrower’s assets as collateral.
- Liquid collateral is preferred as opposed to illiquid or physical assets such as equipment.
- Asset-based lending is often used by small to mid-sized businesses in order to cover short-term cash flow demands.
Cash Flow Financing
Capital Insertion When You Need It
This is a common financing option for small businesses. Essentially, Cash Flow Financing, or a Cash Flow Loan, refers to a type of loan given to a business or company based upon said company’s anticipated cash flow amount in the coming weeks or months. The term “cash flow” literally refers to the amount of money coming into a business at a specified point in time. Cash flow financing is best suited for companies that can show steady growth of cash inflows and that require an upfront investment to generate more revenue.
Advantages of Cash Flow Financing
- Availability of a large funding amount—often much larger than a bank will grant
- Customizable, flexible terms based on need and anticipated cash flow
- Scalable loan amount tied to the equity value or enterprise value of a business
- More advantageous to bring in cash flow rather than an investor—a business can hold on to shares and keep control
Key Takeaways
- Estimated income falls short of actual income
- Trying to grow business too fast without proper return or processes
- Unexpected expenses and unforeseen challenges—whether company specific or due to the economy at large (e.g. – COVID-19)
- Unanticipated increase in labor or expenses
Equipment Financing
Equip Your Business
In simple terms, there are generally two ways for a business to finance the purchase of equipment: 1) Equipment Leasing, 2) Equipment Loans. “Equipment” does not simply refer to big machinery, construction implements, or new computers. It can mean virtually anything a business may need—from furniture to water fountains. Equipment leasing is similar to an equipment loan with a big exception: it’s the lender that buys the equipment and then leases it back to the company. Depending on your company’s needs, leasing may or may not be the way to go.
Advantages of Equipment Financing
- Ability to utilize equipment that may become outdated—the business is not stuck with old computers or machinery or furniture
- Less initial expense—acquire assets with minimal cost
- Flexible terms customized to a particular situation
- Maintain cash flow without big expenditure
- Manage the risk by not investing in a capital asset
Key Takeaways
- Any delinquent payments will be reflected on your credit
- You don’t own the equipment—this is a short-term solution
- Higher total cost in the long run versus an equipment loan
- Limited equipment availability through leasing
Account Receivable Financing
Get Paid Faster
Also known as Factoring, this is another common practice with small and mid-size businesses. Accounts receivable financing basically allows a company to receive an upfront, or early, payment on outstanding invoices. A company can leverage a portion, or all, of its outstanding accounts receivable in order to secure an early payment. A pre-determined fee will be attached, as well.
Advantages of AR Financing
- Unsecured business financing option with no need for collateral or assets
- Business remains in control and retains full ownership of business
Key Takeaways
- This type of financing will come at a higher cost than rates charged for other types of financing
- Possibility of a lengthy contract that will go past the point of viability
- Potential delinquency of vendors paying outstanding invoices can create a snowball shortage
Debt Restructuring
Find the Margin Again
First of all, this is not bankruptcy. Debt restructuring is not a legal procedure filed in a federal court, rather, it is an agreement between a company and its lenders/creditors to extend or amend or even reduce payment terms. The whole purpose is to creatively satisfy creditors while making your accumulated debt more manageable. Small business debt restructuring is a great way to approach satisfying existing debt while avoiding the complications and pitfalls of bankruptcy.
Advantages of Debt Restructuring
- Will not negatively impact credit score as much as bankruptcy
- Makes debt “bottlenecking” more manageable
- Fulfills a negotiated creditor-endorsed compromise
- Consolidate multiple debts into a single (or fewer) lenders
- Access equity and free-up needed cash
Key Takeaways
- Though not as bad as bankruptcy, credit scores could be impacted negatively
- It can be an expensive, especially with attorney and other fees
- The longer you take to pay the more you pay in interest