By Brian Birnbaum
Startups have enough on their plate during their nail-biting first months and years in business to have to worry about something like financing to sustain and grow their company. Yet sadly, one of the most common complaints I hear from owners trying to grow their business is about exactly that. During the all-important formative years for a new business time and effort that should be spent making the company the best it can be is spent instead fretting over how and where to get the necessary funds to keep it going.
Thankfully, there is an alternative to that anxiety-inducing financing quandary that so many startups face—alternative financing, that is. Factoring, an alternative financing option that Liquid Capital provides, grants businesses funding by selling its accounts receivable. Below are five key reasons why factoring is a perfect option for startups in search of financial support.
Funding is immediate. Unlike funding obtained from a bank, which can take a considerable amount of time to be approved, cash obtained from factoring is made available immediately. For most startups, time is of the essence in obtaining funding and a failure to procure funding fast enough can be a very quick death knell to an incipient, cash-strapped business.
Funding is easier to obtain. For startup companies it’s often difficult to get financing from banks. This can be attributed to many different factors, the most obvious of which being a lack of credit. With factoring, an owner needs only to provide receivables in order to get the necessary funding.
All receivables are credit insured. All receivables obtained by factoring are credit insured. This means that in the event that a client’s customer is unable to pay the amount owned as a result of insolvency the amount is paid by the insurance company. This is especially important to startups since even a single bad debt could be enough to bankrupt a new company.
Funding is not limited. Most mainstream financing options are quite limited in terms of the cash they can provide. With factoring, the amount of money that can be made available is not limited by the same constraints. This allows an owner to obtain the exact amount of cash necessary to build, grow or bolster the business.
No collateral, no problem. Also in contrast to more typical forms of financing, with factoring there is no collateral requirement. This is an especially important feature for startups because, after meeting the initial expenses that come with starting a business, most owners simply have nothing to leverage for financing. Factoring thus allows startups to grow unimpeded by a lack of capital. Thus, as a company’s sales grow so does the availability of additional financing.
Factoring is not for every startup, but it is an option the benefits of which are obvious for many of them. Factoring takes much of the stress out of the financing process owing to its ability to be adapted to fit the gamut of money needs starting and growing a business can demand.
A factoring company like Liquid Capital offers purchase order or trade financing, which allows startups to open lines of credit with no collateral, with nothing down and with no stringent funding limitations. When growing your business, the only money you should have to worry about is the amount you’re bringing in from customers. With an alternative financing solution like factoring, that becomes a goal that’s more easily reached.
Brian Birnbaum is founder and director of Liquid Capital, a full-service factoring company that helps businesses grow and succeed by providing immediate financing secured by credit-worthy account receivables. Liquid Capital currently has a network of over 80 franchise owners or “principals” in North America and Hong Kong. Follow him at @Liquid_Capital.