Financing for Your Small Business

2 Mins read

The dream of many is to be independent and have their own business but one of the biggest obstacles that the small businessman or entrepreneur usually faces is the proper management of the company, very few of them have the administrative knowledge to make use of all the tools available to help them, between paying bills, permits and licenses, payroll, suppliers, and the pressure to get more and better customers sometimes they end up having severe cash flow problems that may well lead them to the gorge.

When this happens many turn to family and friends for the financial resources they need to keep operating, some more turn to banking institutions for a loan however, this is not the most accessible option since to grant a loan they usually ask for an innumerable amount of documents, collaterals and procedures that they will later submit to analysis and that together with the credit history of the applicant will have to determine whether or not they will be granted the money they need. This process, in addition to being complicated, can be very delayed, which can lead to the paralysis of the operations of the company that can sometimes bring about catastrophic consequences such as its closing.

Very few small businesses are aware that there are an alternative and simpler solution to their money problems, this is small business factoring. This option involves the entrepreneur selling their invoices to the factoring company in exchange for immediate payment of a specific amount of the total debt that their client has to pay him, the factoring company from that moment assumes the responsibility to carry out the necessary actions to collect the debt once the deadline has arrived, typically in 30 to 90 days, and from the amount recovered will give a second payment to the entrepreneur.

This service is not free, factoring companies will charge a fee otherwise called the discount rate, can run from 1% to 5%, contingent upon the invoice sum, whose amount is determined by taking into account the number of invoices you sell them, the amount of your client’s debt, the feasibility of collecting that debt, and whether you have sold them invoices before, and whether the factor is “recourse” or “nonrecourse.” The factor type alludes to who is eventually answerable for an invoice that goes unpaid — your organization or the factoring organization.

The more confidence they have in you and the better your client’s financial record, they will consider that it will be much easier to recover payment for the goods and services you sold them, the lower the fee will be.

Once you have opened your small business do not expect to find yourself in a difficult situation to look for small business factoring, consider that you can make this operation a regular means to have the economic liquidity necessary for your business to continue operating, allow yourself to investigate the factoring companies that are near you, compare the services they offer and the fees that operate in the small business factoring, you will see that if you take into account these brief tips can get the success you are looking for.