(480) 397-0590

Want a Career?

Find a CFO

223 partners in 45 states
     6,745 years experience

Find a CFO by zip code

Find a CFO by name

Free Business Resource

Fill out the form and receive for FREE The Discovery Analysis (a $1600 value)





Privacy policy

Creative Ways To Get Cash Now

May 27, 2010

Right now, many business owners are concerned about cash flow and where to turn to if the bank won't help. It's now time to get creative. The breakdown in the credit markets has had lasting effects and many businesses, particularly owners with bad credit, unproven ventures, new start-ups or companies tied to troubled industries, are having difficulty.

As a result, there is much interest in alternative sources of financing, which can range from receivables factoring to bartering and social network loans.

Factoring , although it has a reputation for high cost, has been around for centuries and in the right situation it can be valuable. First of all, you can receive cash in about five to 10 days - or even sooner, from your invoicing date. This can be critical when your company is in a crunch. Additionally, there is no requirement for your company to have a credit check. That's because factors normally only want to evaluate the ability of your customers to pay.  The key is the credit quality of your customer.  Another similar source is PO Financing which raises money based on approved purchase orders - although it's generally only available for product based orders - not services.

Another approach is to use an online marketplace, such as The Receivables Exchange, where you can post your receivables on a private Web site and have financial institutions bid on them. Somewhat similar is FTrans which provides funding as part of an accounts receivable management process.

It's not always easy for small companies to get traditional bank loans these days. Major financial institutions have written down over $400 billion in bad investments over the past couple of years and banks are scrambling to raise depleted coffers. That usually hurts small companies more than their larger counterparts.

Asset-backed loans are commercial loans backed by company assets-anything from a company's inventories to its accounts receivable. These loans differ from traditional commercial bank loans because they cost more, require lenders to scrutinize assets more thoroughly, and sometimes require physical inspections that most banks wouldn't conduct. Nevertheless, they may be a match for a company whose bank won't take their call.

Bartering has gained currency as a relatively easy path for small companies to get goods and services without having to dig into cash flow. According to the most recent numbers compiled by the National Association of Trade Exchanges (NATE) in Mentor, Ohio, some 400 barter exchanges in the U.S. and Canada generate transactions worth $4 billion a year. For small businesses, ramping up their own use of barter is a strategy that allows them to reserve cash and still expand operations at a time when credit lines have yet to thaw. Larger customers may finance working capital to ensure an ininterupted supply of niche manufactures - especially when te product is complicated and difficult to quickly resource.

Social lending is another similar, but more organized option that is based on social networking concepts through the web. Prosper is an auction-style site that connects borrowers with lenders and promises both sides more favorable interest rates than banks by cutting overhead costs. Loans up to $25,000 are possible with "lenders" bidding on interest rates based on the credit quality and "Story" of the applicant. This is worth watching as it matures.

Credit Unions, As nonprofit organizations, credit unions don't aim to make money from their customers, so their loans typically carry lower interest rates than bank loans do.

Using a 401K to invest in a business is a little known option. Sure, you can liquidate your retirement fund and get killed on taxes, or take a loan which is limited to about $50K, but you can also use a self directed fund to invest in a business.

VC funding is highly over-rated and a little like buying a lottery ticket for most companies - given the small number of companies actually funded this way.  Same for Angel funding. 

Of course, the business with a sound financial infrastructure, reliable and timely financial information, proactive cash flow planning, with a highly experienced B2B CFO® in place will always have the most competitive advantage in business funding.

 

More from David Kirkup…

About the Author

David has over two and a half decades of business experience and is a proven financial management expert. Working in Europe and the USA, David has served as Divisional CFO at a number of Fortune 500 corporations: including Reuters, Marsh & McClennan, Zurich Insurance and ADP as well as numerous small and mid size companies. As part owner of a small software company, he was heavily involved in the marketing efforts and ultimate sale of the company. As CFO with a national PEO firm he dealt with the credit and financial issues facing hundreds of small business clients. David also spent 5 years in Bermuda managing captive insurance companies.

View David’s Personal Website

Books


A collection of books from B2B CFO® to help any business succeed. Read the first chapter from books, including the Wall Street Journal’s book, for free.

Zoom in using the +/- tools on the left. Click on each photo for more details.