Small Business Funding Solutions: What to Do Differently in 2018

SANTA TERESA, N.M., Jan. 8, 2018 /PRNewswire/ -- The new year brings small business owners a chance to look at their companies to see what helped them become more profitable and what didn't. It's an excellent time for them to consider changes that could put their companies in a better financial position by this time next year.

As popular author Tony Robbins says, "By changing nothing, nothing changes." Yet changes should be carefully evaluated. As the late Winston Churchill once said, "There is nothing wrong with change… if it is in the right direction."

For many small business owners, the time gap between finishing a service or sending out a product and getting paid for it was a major problem for their operations and profitability last year. They need reliable access to funds to keep going and growing. What can be done differently this year to bridge that gap in cash flow?

Here's a look at five funding sources that can help small business owners run their companies more profitably in the new year.

1) Equity in the company

Selling equity in a company to another party can bring in the cash needed for expansion. However, most small businesses have modest profit margins and giving up part of their equity to another party just dilutes those profits. Few business owners want to risk giving up a portion of the value of their companies for a temporary cash flow fix.

2) Personal loans

Some business owners can borrow from family or friends when they face a shortfall in working capital. The challenge is paying back the loan in a timely manner – or risk losing the relationship.

3) Line of credit

The upside: Line-of-credit loans usually carry lower interest rates as banks see them as fairly low-risk. The downside: Banks often don't offer lines of credit to new businesses or for buying equipment. In addition, a company needs dependable income for paying back the bank and it's not always possible to predict the revenue stream of a small business.

4) Short-term loan

Short-term loans can be easier to access than lines of credit for new companies and can be applied toward equipment purchases. However, short-term loans come with higher payments over that shorter period. Business owners also face high-interest rates, especially with those loans marketed and managed online, and more debt on their balance sheets.

5) Invoice factoring

A tried-and-true source of working capital, invoice factoring is a fast and affordable debt-free solution. Qualification is easy: companies are accepted on the creditworthiness of their customers, not on their own credit scores. Once a company has completed a service or shipped a product, the factoring company buys their accounts receivable invoices, advances the client most of the invoice value, handles the collection of payment, and then forwards the balance to the client, minus a small factoring fee after the customer pays. Factoring is also the only source of working capital that can come with free benefits, such as professional credit checks, collections, and back-office support.

When a business can access funds when needed – and not incur additional debt, the business owner can focus on staying solvent and planning for the future. Availability of adequate funds means that the company can take on new customers, take advantage of early payment and volume discounts, hire the right people to close more sales, and take any steps needed to expand operations and increase profit margins.

The cash flow consultants at Interstate Capital, a financial services company founded in 1993 to help small businesses improve their cash flow challenges, can answer any questions about how invoice factoring works. By getting to know a prospective client's company's needs and goals, these experts can customize a factoring program that can position that company for greater success in 2018.

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SOURCE Interstate Capital