A small business owner who is trying to grow their business during a booming economy will encounter some obstacles when applying for traditional financing if they can’t show an extensive profitable history. Now throw in the current economic climate and the chance of an entrepreneur obtaining a conventional bank loan is slim to none. When loans are no longer an option business owners have to find a funding option to keep them from having to dip into their personal savings or relying on friends and family for operating cash.
In the past, the main fallback has been small business credit cards. During better economic times credit card companies actively pursued the small business market. Entrepreneurs were enticed with low introductory rates accompanied with high credit limits. In addition, banks started offering small credit lines to business owners who didn’t meet conventional loan requirements, and these entrepreneurs started to rely on them.
As the economy worsened, entrepreneurs began to see their interest rate go up and their credit limit go down. With credit card delinquency among small business owners on the rise, the banks and credit card companies say the only way to decrease the risk to their portfolio is to make changes with their small business accounts. As a result of this, many small business owners have seen a large cut in their credit limits.
Now that access to bank loans and credit cards are hard to come by, where can these small business owners find funding?
Through factoring!
Now, more than ever entrepreneurs are in desperate need of a factoring company that understands their needs and today’s market. If you think about it, spot factoring is similar to using a credit card. Many small business owners use credit cards to purchase their inventory and then pay down that bill as their customers pay them. With factoring, a business owner can just as easily sell their invoices to a company like River Rock Financial and receive cash immediately on those invoices. In turn, they can use that cash to purchase inventory, pay their employees, etc. In both cases, the entrepreneur has cash readily available to meet the demands on their business.
These funding methods may sound exactly the same. However there is one very important difference. When a bank or credit card company agree upon a credit line and interest rate for a small business it is based on the financial strength of the company, or it’s owner. During hard economic times the credit card companies view the normal ups and downs of a struggling small business too risky.
However, with factoring, the credit decision is not base on the business credit. Instead, the decision is based on the creditworthiness of the company’s customers. Remember, many small businesses often sell to larger, more established companies. Because these companies are financially sound, they have the ability to continue paying their vendors, even during hard economic times. In other words, when a small business owner uses factoring, they can literally leverage the creditworthiness of their customers!
Factoring is the perfect funding solution for those small business owners who are unable to qualify for traditional financing or having difficulty getting a reasonable rate on a small business credit card.
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