Accounts Receivable Financing

Because of the economy and bank problems of the last few years, accounts receivable financing options have changed. If you are a small business owner what can you do? Let’s run through where you can get working capital today and the requirements. Traditional Banks: If your business shows a profit for 2+ years on the tax returns, is profitable year to date, minimal customer concentration issues, your personal credit is good; then you can probable qualify for a line of credit based on your Accounts Receivables, hard assets and/or your ability to cover the debt payment from cash flow. Your cost of capital can be very low (3-6%) depending on size of the loan facility and the variables above, but most small businesses do not qualify for bank financing. Credit Unions: "Credit unions by their nature are designed to serve the underserved," said Frank Amantia, president of Mid-Atlantic Financial. Banks, he said, "have not stepped up to the plate and filled that need" of local businesses seeking loans. Credit unions, historically focused on consumer lending, increasingly are making loans to businesses, too. But the industry's potential role in fueling an economic recovery, and its opportunity to seize market share from struggling banks, is limited by federal limits on the share of a credit union's resources that can be devoted to business lending. But business loans made by credit unions are expanding and if your needs are less than $500,000 then your local credit union might be a good alternative. The credit requirements are similar to a bank’s but somewhat less stringent. Asset Based Lenders & Factors: This category of lenders looks more at the quality of your liquid assets- IE Inventory and Accounts Receivables. While an Asset Based Lender looks at your money needs more like a traditional bank, they can many times fund the “bruised fruit”. If your business had a down turn but has stabilized this is typically the sweet spot for an Asset based Lender. Your all in cost for this type lender can be in the 9-20% range. If you do not meet the minimal credit requirements of the above lending types, a factoring company May be your best choice if you sell to credit worthy clients on terms. Factoring companies can advance you up to 85% against each one of your invoices. There are factoring companies that like start-ups and most look at the credit worthiness of your customers not you. The cost to factor can be 20%-40% per year but this includes credit protection and the services of an outsourced credit department.