Capital Solutions Bancorp, a firm that provides working capital funding to businesses, has just released an educational blog titled "How You Can Improve Cash Flow with Flexible Spending." The blog can be seen here.
In the blog, the author states that chasing down payments from customers puts a burden on administrative staff as well as limits the cash on hand within the business. Flexible financing can help businesses acquire the working capital they need without loans or debt.
Working Capital Financing Works with Current Earnings
Flexible financing isn't a loan or a business line of credit. Instead, working capital funding works by delivering payments that the company has already earned but has not received yet. Working capital funding allows a business to access the money it has earned faster than waiting 30, 60 or even 90 days for a client to pay.
Five Benefits of Flexible Funding
1. Cash flow improves so the business can buy equipment, take on new clients, etc.
2. Having cash on hand helps cut overhead costs.
3. Paying vendors on time improves relationships.
4. Growth becomes possible when a business has enough cash to hire more employees and buy supplies.
5. Productivity increases because staff members are no longer spending time chasing down payments.
The Flexible Funding Firm Assumes All Risk
Unlike a business line of credit or a loan, with flexible funding, the funding firm itself assumes all the risk for non-payment from the business' clients. The funding firm delivers the customers' promised payment to the business faster with a small, set fee subtracted. But if the customer never pays, the business is not liable. The funding firm pays the business regardless of whether or not the customer pays.
Crowdfunding Offers No Promises
Crowdfunding bills itself as flexible financing, but crowdfunding offers no guarantees. If a crowdfunded project doesn't raise enough money, typically all the donors are refunded and the project is closed. That's good news for donors, but the people the put together the project are now out of all the time they spent setting up the account and waiting for donations, not to mention they no longer have the funds they needed in the first place.
Beware of MCAs Disguised as Flexible Funding
Merchant cash advances are not the same as flexible funding. They call themselves micro-lenders, small business lenders or providers of flexible financing to small businesses, but the way merchant cash advances work is very different from working capital funding. MCAs typically charge high fees and interest.
Asking the Right Questions will Protect the Business
Here are a few questions a business should ask when attempting to secure working capital financing.
1. What does it take to qualify?
2. What are the minimum/maximum credit limits?
3. What is the procedure/penalty for ending the relationship?
4. Is a personal guarantee required?
5. How often are withdrawals allowed?
For more information, call Capital Solutions Bancorp at 800-499-6179 or visit www.CapitalSolutionsBancorp.com.