There are many options for financing available to small business owners who are finding it difficult to secure funds through traditional means. If a bank or credit union won’t loan you the money to get your business up and running, you may want to look into alternatives like selective receivables financing.
Table of Contents
What is selective receivables financing?
This type of funding uses existing accounts receivables as collateral to borrow funds for anything your business needs with a promise to pay it back once the customer settles the bill. The lender then gets their principal back with interest when the company gets paid.
What are the benefits of selective receivables financing?
No monthly loan payments – selective receivables financing is not like a traditional loan so there are no monthly commitments to pay off a certain amount. This type of funding is flexible as it requires you to pay the lender when the customer pays off the invoice. Companies that run seasonally and experience irregular cash flow will find this particularly helpful because they don’t need to shell out money for monthly payments during the slow season.
Access to funds when your business needs it – this financing option has a pretty fast approval time so your company could be purchasing equipment and consumables as quickly as 24-48 hours after applying. Banks will usually have several processes they need to complete which can take time and cost you valuable business. This type of funding also gives small businesses some latitude when it comes to customer payment terms. Waiting to receive money from customers can cause a cash flow problem and affect the ability to fulfill future orders.
Funding amounts are flexible – the lender in this case does not rely on past performance or last year’s bottom line to set the amount. Rather, the amount of money you receive is based on the business you already have, and the loan doesn’t come due until the customer pays the invoice.
No need for personal collateral – one problem startups come across in the financing stage is the lack of any real collateral to back a bank loan. This leads to getting declined or the business owner using personal assets as collateral which can be risky and stressful. Selective receivables financing requires only one type of collateral, existing accounts receivable which makes it easier to focus on the business at hand rather than worrying about personal assets.
What types of businesses can benefit from selective receivables financing?
Startups with little to no history who can’t get a loan from a bank benefit greatly from this type of funding.
Small businesses with bad credit who are unable to get a loan can apply for this type of financing based on their current accounts receivables rather than their credit rating. It is the perfect way for a struggling company to get back on its feet and succeed.
Seasonal companies with irregular cash flow benefit from this specific type of funding because they have the money to run their business and don’t have to pay it back until cash is in hand from their customers. This eliminates having to pay back loans when business is slow or non-existent.
Starting and maintaining a small business can become difficult when you have no credit or bad credit but you still have customers who want to hire you. Selective receivables financing can help you ensure you have the cash flow when you need it for expenses, staff, and materials without having to repay the loan until you have been paid for the job.
