Alternative Financing Vs. Venture Capital: Which Option Is Best for Boosting Working Capital?

There are several potential financing options available to cash-strapped businesses that need a healthy dose of working capital. A bank loan or line of credit is often the first option that owners think of – and for businesses that qualify, this may be the best option.

In today’s uncertain business, economic and regulatory environment, qualifying for a bank loan can be difficult – especially for start-up companies and those that have experienced any type of financial difficulty. Sometimes, owners of businesses that don’t qualify for a bank loan decide that seeking venture capital or bringing on equity investors are other viable options.

But are they really? While there are some potential benefits to bringing venture capital and so-called “angel” investors into your business, there are drawbacks as well. Unfortunately, owners sometimes don’t think about these drawbacks until the ink has dried on a contract with a venture capitalist or angel investor – and it’s too late to back out of the deal.

Different Types of Financing

One problem with bringing in equity investors to help provide a working capital boost is that working capital and equity are really two different types of financing.

Working capital – or the money that is used to pay business expenses incurred during the time lag until cash from sales (or accounts receivable) is collected – is short-term in nature, so it should be financed via a short-term financing tool. Equity, however, should generally be used to finance rapid growth, business expansion, acquisitions or the purchase of long-term assets, which are defined as assets that are repaid over more than one 12-month business cycle.

But the biggest drawback to bringing equity investors into your business is a potential loss of control. When you sell equity (or shares) in your business to venture capitalists or angels, you are giving up a percentage of ownership in your business, and you may be doing so at an inopportune time. With this dilution of ownership most often comes a loss of control over some or all of the most important business decisions that must be made.

Sometimes, owners are enticed to sell equity by the fact that there is little (if any) out-of-pocket expense. Unlike debt financing, you don’t usually pay interest with equity financing. The equity investor gains its return via the ownership stake gained in your business. But the long-term “cost” of selling equity is always much higher than the short-term cost of debt, in terms of both actual cash cost as well as soft costs like the loss of control and stewardship of your company and the potential future value of the ownership shares that are sold.

Alternative Financing Solutions

But what if your business needs working capital and you don’t qualify for a bank loan or line of credit? Alternative financing solutions are often appropriate for injecting working capital into businesses in this situation. Three of the most common types of alternative financing used by such businesses are:

1. Full-Service Factoring – Businesses sell outstanding accounts receivable on an ongoing basis to a commercial finance (or factoring) company at a discount. The factoring company then manages the receivable until it is paid. Factoring is a well-established and accepted method of temporary alternative finance that is especially well-suited for rapidly growing companies and those with customer concentrations.

2. Accounts Receivable (A/R) Financing – A/R financing is an ideal solution for companies that are not yet bankable but have a stable financial condition and a more diverse customer base. Here, the business provides details on all accounts receivable and pledges those assets as collateral. The proceeds of those receivables are sent to a lockbox while the finance company calculates a borrowing base to determine the amount the company can borrow. When the borrower needs money, it makes an advance request and the finance company advances money using a percentage of the accounts receivable.

3. Asset-Based Lending (ABL) – This is a credit facility secured by all of a company’s assets, which may include A/R, equipment and inventory. Unlike with factoring, the business continues to manage and collect its own receivables and submits collateral reports on an ongoing basis to the finance company, which will review and periodically audit the reports.

In addition to providing working capital and enabling owners to maintain business control, alternative financing may provide other benefits as well:

It’s easy to determine the exact cost of financing and obtain an increase.
Professional collateral management can be included depending on the facility type and the lender.
Real-time, online interactive reporting is often available.
It may provide the business with access to more capital.
It’s flexible – financing ebbs and flows with the business’ needs.
It’s important to note that there are some circumstances in which equity is a viable and attractive financing solution. This is especially true in cases of business expansion and acquisition and new product launches – these are capital needs that are not generally well suited to debt financing. However, equity is not usually the appropriate financing solution to solve a working capital problem or help plug a cash-flow gap.

A Precious Commodity

Remember that business equity is a precious commodity that should only be considered under the right circumstances and at the right time. When equity financing is sought, ideally this should be done at a time when the company has good growth prospects and a significant cash need for this growth. Ideally, majority ownership (and thus, absolute control) should remain with the company founder(s).

Alternative financing solutions like factoring, A/R financing and ABL can provide the working capital boost many cash-strapped businesses that don’t qualify for bank financing need – without diluting ownership and possibly giving up business control at an inopportune time for the owner. If and when these companies become bankable later, it’s often an easy transition to a traditional bank line of credit. Your banker may be able to refer you to a commercial finance company that can offer the right type of alternative financing solution for your particular situation.

Taking the time to understand all the different financing options available to your business, and the pros and cons of each, is the best way to make sure you choose the best option for your business. The use of alternative financing can help your company grow without diluting your ownership. After all, it’s your business – shouldn’t you keep as much of it as possible?

How People With Bad Credit Can Get Auto Loans

Individuals are forced to avail poor credit car loans when their credit status is not up to the mark due to various reasons – the primary reason being not complying with the terms and conditions of existing loans and credit facilities. it is important to know that if one engages with a debt relief program, or files for bankruptcy, the credit scores will indicate the fact for as long as ten years. People can miss out on the monthly payments, and when that happens, the worst thing a person can do is “Do Nothing”. Ignoring the monthly payments would not solve the issue and worsen an already bad financial situation.Delinquency can lead to:* Big monthly late payment charges.* An increase in the rate of interest while availing credit facilities in the future.* The creditor sending the late or missed payment report to the credit bureau, which lowers the credit scores.* The creditor losing the borrower is confidence, which could result into litigations and lawsuits.Correcting DelinquencyIt is important not to panic if you have missed out on your monthly payment. The following suggestions may help you deal with your missed payment situation:* Call your car loan company offering auto loans for people with bad credit, and explain the financial hardship that has resulted into the default. Explain what is happened is a “One time happening” and it would not be repeated in the future, but it is difficult to pay right now, and you need some more time to redeem.* In case your loan provider would not allow you the “extra” time to repay, you could get in touch with your employer and ask for a cash advance against the monthly salary. Employers generally help out their employees, especially if they have been working for some time.* Alternately; one can also borrow partial amounts of the missed payment from friends and relatives, and pay off the creditor. People do not usually hesitate lending out small amounts of money, but are wary when approached for a bigger amount in the form of a “monthly” loan.* Check out if you have a couple of other bills whose payment can be delayed for some time. If that is possible, adjust the bill amount in paying off the missed payment, and the next month compensate by topping up the bill amount.Refinancing your Existing Car Loan or LeaseThe existing financial crisis can make it difficult for people to repay their bad credit auto loan monthly installments, and when faced with delinquency, individuals often feel if the monthly amounts are low and affordable, it is easier to make regular payments. One way of making this possible is by refinancing your existing car loan. One can refinance an existing mortgage loan, and refinancing an auto loan is not much different since the basics remain the same – the loan amount needs to be secured by some guarantee or collateral. In case of auto refinance, the car acts as a collateral. However it is important to have the exact depreciation suffered by the car and up to what amount the creditors evaluate the car. Availing an auto refinance can make loan repayment very easy, since the net payable rate of interest gets reduced, and the installment amount too is reduced to suit the borrower is monthly income or paycheck.Buying a Cheaper or a Used CarThere is another way of dealing with the situation if you feel you are likely to be delinquent, and it is not avoidable. New car loans involve larger monthly repayment amounts. If your car is current monthly installments are high, it is possible to sell of your car and buy a cheaper one, or even go in for a used car. In many ways it makes sense to sell the car, since it can help you to either repay the bulk of the total auto loan amount and thereby decrease your total outstanding amount, or else the person buying your car ends up redeeming the car loan. A good car loan lender can help you with this.

Travel and Limos 101

It’s the busy travel season and since I am in the limo business, I want to share some tips if you are traveling and using a car service or limo company during your trip. There are so many disreputable limo companies that have no business even BEING in business and they give the rest of us a bad name. I have heard dozens of horror stories from my clients over the past few years that I feel it would be a public service to my readers and clients so that they know what to look for! Here are some things to know that will make your limo service a pleasant one and keep your holiday happy!1. BOOK EARLY – I cannot stress how important it is to book your limo service early to avoid disappointment and to make sure that you have a car for your event!! Thanksgiving Day is the single biggest travel day of the entire year!! If you don’t book your reservation at least 10-14 days in advance, you will NOT be getting a car. The same is true of New Year’s Eve which is the single biggest night in the industry–BOOK EARLY and USE A CREDIT CARD!! There are several reliable limo service websites, the two best in the industry are limos.com where you can rate your service and airportservice.com where many airport travelers find car service for airport transportation. You can easily check for limos at both websites and you can find my company, dependablelimos.com listed at both sites! Always use a credit card for your reservation so that the limo service KNOWS you are going to show up and get into the car. If you cancel your reservation within a certain time frame, your card will not be charged, but if you cancel at the last minute and/or don’t show up, expect to pay the full price for the trip. The limo company turned away people to honor your reservation and they expect to be paid for the trip. This is standard practice in the industry, it’s just like a guaranteed hotel room.2. MAKE SURE YOU HAVE A CONTACT NUMBER FOR THE COMPANY. The airports are packed with people in the holiday season and people get lost in airports and traffic is usually very snarled outside major airports and limo companies are very tightly booked. If your plane is going to be late, then make sure you call the limo company and TELL THEM!! Any reputable company will bend over backwards to make sure that you get your ride no matter HOW late your plane comes in–but it helps if you let them know. If you get bumped and put on a different flight. CALL AND TELL THEM!! We are not psychic, and the more you help us, the better we are able to serve you. If your flight is early (it DOES happen) then call the company and tell them when you land–and always check your voice mail for a message from the company when you get off the plane. You might have to wait for your car, but you will get one and a little patience and understanding on both sides helps.3. AIRLINES LIE ABOUT ARRIVAL TIMES No matter how many times I receive bad information from the airline about flight times, it still infuriates me that I get incorrect information on a regular basis about flight arrival times from the airlines! If I ran my business like the airlines run theirs, I’d be in bankruptcy too–like so many airlines are!! Jet Blue is particularly bad about this–they have a flight from California to Ft. Lauderdale that is scheduled to arrive every day at 5 a.m. and it ROUTINELY lands about 4:15 a.m. This is infuriating as in order to meet the plane and get proper sleep, I have to go to bed about 9 p.m. Eastern time–and the plane leaves CA at 9 p.m. Pacific time (midnight EST) and I am asleep since I have to be up no later than 3:30 a.m. to meet this flight. When it arrives early, it breaks my back since it’s almost an hour’s drive to that particular airport.4. TIP YOUR CHAUFFEUR. Most limo drivers work almost entirely for your tips. We are waiters/waitresses with Lincolns. Limo company owners are buried with insurance bills that are ridiculous, as are licensing and permit fees and chauffeurs are working for your tips. The standard is 20% of the fare for good service and if you receive excellent service. which you do with my company and my affiliates, please show your appreciation to the hardworking chauffeur who drove the car safely, cleaned it before and after you got in and out, carried and loaded your luggage on both ends of the trip and took care of any special requests you made along the way.