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When Banks won't lend, Alternative Financing delivers cash
New business owners are constantly under a cash flow challenge. In the early days of a growing company, all eyes are on client acquisition and bringing in the sales. Great! OK, now your company is making sales and new contracts are getting signed with delivery dates at hand.
So, what seems to happen when you, an excited business owner, approach a bank to acquire the financing needed to accomodate these new customers and cover working capital expenses with vendors and staff? The bank says, "Where's your collateral?" The bank sees an undercapitalized business without a track record of tenure (less than 2years), without substantial assets and no demonstratable method to pay back any financing that would be offerred. Would you loan money to an entity like that? The banks don't care to either.
But what is really going on here? The banks react the way they do because they are only in a position to offer DEBT financing. That means loans. And aside from the bank criteria I mentioned above, the bank makes its decision to fund, in part, on the credit rating of your business.
The type of financing that Diamond Rose Financial represents is typically known as "Alternative Financing". Alternative to what, you say? Alternative to traditional banks. In Alternative Financing, the commercial funders we represent are less concerned about your business' assets, tenure and credit rating and mostly concerned with who you do business with, and their credit-worthiness.
The first type of Alternative Financing known as factoring is done by commercial funders known as yes, Factors. Their financing products are based on valuing your accounts receivable much differently than how a bank does in terms of collateral. Our funders literally purchase your receivables or contracts for immediate cash. Within 24hours of submitting an invoice to a funder, they will advance you between 70-85% of the face value of your invoices. This has an immediate, positive impact on your cash flow challenges. Yet, this is NOT a LOAN. There is NO DEBT to repay. It is the acceleration of your cash flow by the purchase of your own assets that would otherwise be dormant and underutilized i.e. waiting to be collected. When customer payments are finally made to the factor, they forward the residual of the invoice to you, less the factor's discount fee. You simply get your own money sooner!
A second type of Alternative Financing is done by Factors or Accounts Receivable Financiers. In the case of Accounts Receivable Financing, receivables are pooled into the equivalent of an active "line of credit" from which to draw cash. If your sales increase, and the size of your "pool" grows, your line of credit increases as well. Banks typically must cap their lines of credit. AR Financing is unlimited and not subject to your credit rating.
In conclusion, you are much more likely as a growing company to be approved for funding by an Alternative Financing source than with a bank because of the type of product offerred and whom they base their credit decisions on. We'll explore cost tradeoffs in another post.
So, what seems to happen when you, an excited business owner, approach a bank to acquire the financing needed to accomodate these new customers and cover working capital expenses with vendors and staff? The bank says, "Where's your collateral?" The bank sees an undercapitalized business without a track record of tenure (less than 2years), without substantial assets and no demonstratable method to pay back any financing that would be offerred. Would you loan money to an entity like that? The banks don't care to either.
But what is really going on here? The banks react the way they do because they are only in a position to offer DEBT financing. That means loans. And aside from the bank criteria I mentioned above, the bank makes its decision to fund, in part, on the credit rating of your business.
The type of financing that Diamond Rose Financial represents is typically known as "Alternative Financing". Alternative to what, you say? Alternative to traditional banks. In Alternative Financing, the commercial funders we represent are less concerned about your business' assets, tenure and credit rating and mostly concerned with who you do business with, and their credit-worthiness.
The first type of Alternative Financing known as factoring is done by commercial funders known as yes, Factors. Their financing products are based on valuing your accounts receivable much differently than how a bank does in terms of collateral. Our funders literally purchase your receivables or contracts for immediate cash. Within 24hours of submitting an invoice to a funder, they will advance you between 70-85% of the face value of your invoices. This has an immediate, positive impact on your cash flow challenges. Yet, this is NOT a LOAN. There is NO DEBT to repay. It is the acceleration of your cash flow by the purchase of your own assets that would otherwise be dormant and underutilized i.e. waiting to be collected. When customer payments are finally made to the factor, they forward the residual of the invoice to you, less the factor's discount fee. You simply get your own money sooner!
A second type of Alternative Financing is done by Factors or Accounts Receivable Financiers. In the case of Accounts Receivable Financing, receivables are pooled into the equivalent of an active "line of credit" from which to draw cash. If your sales increase, and the size of your "pool" grows, your line of credit increases as well. Banks typically must cap their lines of credit. AR Financing is unlimited and not subject to your credit rating.
In conclusion, you are much more likely as a growing company to be approved for funding by an Alternative Financing source than with a bank because of the type of product offerred and whom they base their credit decisions on. We'll explore cost tradeoffs in another post.
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