08/18/2024
BUSINESS OWNER=2 FINANCIAL HOUSES (part 3)
BUSINESS FINANCIAL HOUSE
One of the biggest challenges for the majority of businesses is maintaining or expansion, yet face many capital challenges due to economy, competition, inflation, the way business is evolutionary changing, etc. We enter to own a business for freedom, yet that freedom can create a mental forecast of what your stocks do, up and down. You have insurances, collections, benefits to attract employees, new vendors, rent, accounting, but the one thing that keeps us sleepless is enough revenue to handle our expenses while making a living for ourselves/ family. Expansion becomes another risk we take, business owners then become fearful of success or failure when deciding to make that transition. In order to move on, you need OPM (Other People's Money), yet when you deal with the wealthy, what do they want if they decide to invest in you? Answer: Equity of your business and yet you are the one with the challenges and they are collecting their money with a lot of love towards you!
Go to the bank and get a "NO", try another Bank "NO", scared to go to the next because your credit is losing points (usually anywhere from 5-10pts per inquire) and you are feeling mentally unstable on where to turn, too. You need to discover OFI (Other Financial Institutions) or OFA (Other Financial Alternatives) which best suits your business to success.
What types of capital (money) can I get for my business:
1. Give up equity in your business to get capital. If your willing to give up 10-30% of your business and possibly other terms, this can be costly.
2. Business Credit Card: If your willing to spend 24-30% interest on your balances, your losing. Expensive way of doing business
3. MCA (Merchant Cash Advance): Less than 3 time in business. Restaurants, retail, or if business excepts a lot of credit card use for sales. Loans go by a factor rate, not an interest rate!!! May have to pay on a daily basis, if not weekly. The percentage favor you to get more capital than a business credit card and yet the factor rate can be equivalent to that interest rate or even higher. Expensive form of borrowing, but made need it, because time of business is less than 3 years!!
4. Equity Business Line of Credit: Works like a HELOC (Home Equity Line Of Credit), you are approved for a certain amount, ex: $500k, you can take out $1 or all, then payback amount. There are NO in Year pay-off terms, like a 20 year term. You will see a maturity date on these loans, maturity date does not mean the payments you make the loan will be paid off (like many HELOC homeowners think), it just means balance should be paid or the contract changes and in the future your interest rate can change if interest rates are higher. Your contract has matured!!! 3+ years in business, good credit, maybe waiting on vendors to pay to cover some business expenses this can help you maintain or expand your business. Interest rates are usually lower than business credit cards.
4. Invoice factoring: If you are always dealing with vendors this can be an attractive form of getting your revenue quickly. I see so many businesses begging their vendors to pay their bill early and they will give a 10-15% discount if you pay within 30 days. What's crazy, the majority still don't take your company on that offer. Gone is the days when the majority of vendors paid their invoices within 15-45 days, now it's 45-120 days, and I know some of you business owners reading this are saying, "FACTS!". That hurts any business looking to grow, expand, cover weekly or monthly expenses, etc, because they got their product or service and you have yet to get paid. Then your pressuring your in house collections person/ people to get that money and it is causing a stressful environment all the way around.
So how does this work, let me give you an example:
You have 3 clients/ customers:
- ABC pays their invoice within 10-20 days (A credit Company)
- DEF pays their invoice within 30-45 days (A credit Company)
- GHI pays their invoice every 90-120 days (B Credit Company)
You sell your invoices to a factoring company, they will charge you a fee to collect and depending on the industry will give you anywhere from 80-95% of the invoice. Then when they collect the remainder they will deduct their fee and pay you back the rest. So, if you look at the 3 clients above, chances are you won't send ABC because they are great paying customers. You will send the next two and now you have your capital back to cover expenses plus any profits! What else did you solve, that person in collections is now not stressed trying to collect, because the factoring company job is to collect to get paid!!! For a small % will take a huge headache away from your business!
5. Equipment Loans: Businesses need equipment either to modernize, grow, etc and these loans are a lot more attractive then doing the above. Time in business is the key, usually 3 years, but there are some institutions that will go 2 years. The biggest plus, if your credit took some hits, there are options for you! A 550 score can get you approved! You need to define what you need money for and if it is for just equipment, this is your best option!!!
The one thing I always recommend, whether you know someone or not, deal with a professional, because your credit can be seriously effected and you can lose other options! If that Bank told you "NO" and your like, I have a 700+ credit score, I don't understand, that's just because banks like to deal with Blue Chip companies more than the average small to medium size business. As a broker, let's work together by questions to determine what best suits your business, not take a chance and believe one size fits all. Love to talk to you about any challenges you may have or future expansion plans your planning to do within 6 -24 months!!!
Call now to connect with business.
