How to finance your business when the bank says No

Do you own a growing business that needs financing? If you are like most business owners, whenever your business needs money you head over to the bank. Unfortunately, as most small business owners soon find out, most banks do not lend money to businesses unless they have significant collateral and a history of successful operations. This presents quite a challenge for business owners.

When banks are not an option, small business owners turn to what is known as the alternative financing funding market. Although the financing options discussed in this article fall under the alternative financing category, they are actually quite widely used and should be considered mainstream. Most major companies (including public companies) have used this alternative financing at one time or another during their growth history.

Most of the tools described in this article can only be used by businesses that are already in operation, and whose main requirement is working capital. Although startups can benefit from these tools, the companies will need to be in operation for a little while and have a growing list of clients.

General Invoice Factoring

Invoice factoring (also known as accounts receivable factoring) is ideal for business owners who cannot afford to wait 30 to 90 days to get paid by their clients. It allows a business to sell invoices from commercial customers to a financing company for immediate payment. The financing company buys the invoices at a discount and waits for the customer to pay.

The main advantage of factoring your invoices is that the financing company makes its decision using the credit of the payer, rather than yours. That means that if you own a small company that is doing business with a large credit worthy company, you are almost certain to have the transaction approved. Another advantage of factoring is that it does not have set limits like lines of credit. The level of financing is limited only by the amount you sell to credit worthy clients. General factors can work with most industries, although there are two main industry subspecialties - freight bill factoring and medical factoring.

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