Monthly Archives: September 2019

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Building Healthy Working Capital Reserves for Your Business

Working capital is at the heart of every business. Whether it’s used to maintain operations and make payroll, or for growth projects, healthy working capital reserves are essential for long-term success. But for many small businesses, building healthy working capital reserves can be a major challenge.

Expect the Unexpected

It is not enough for businesses to simply tread water. Working capital reserves ensure businesses can pay overhead expenses, but there’s much more to success than keeping the status quo. Working capital reserves ensure that when potentially lucrative opportunities arise, you don’t miss out on them because there is not enough capital on hand. Similarly, when there are unexpected expenses, such as to cover materials and personnel for large or unexpected orders, your business needs capital reserves to draw from to fill those customer requests. Working capital reserves reduce the stress and financial impact of those unexpected events.

Loans Can’t Make Up the Difference

Many business owners have the mindset that if there isn’t enough capital in the coffers that they can just make up the difference by taking out a loan. Lenders like to take deep dives into financials before approving loan requests, and that means looking at how much revenue is left over after regular expenses. Additionally, if a business is approved for a loan, debt is placed on the balance sheet, which means even more revenue is going toward not only regular overhead expenses, but paying off the balance of the funding as well. This ends up making it nearly impossible to build working capital reserves.

A Solution for Building Working Capital Reserves

Building working capital reserves starts with a healthy cash flow. Businesses that issue invoices with payment schedules ranging from 30 to 90 days often have expenses during those lag periods which can place a strain on cash flow. By using accounts receivable factoring, unpaid invoices can be turned into cash within 24 hours, resulting in a supercharged cash flow. This allows businesses to get faster access to revenue and build up healthy working capital reserves so they can take on the unexpected and achieve rapid growth.

New Century Financial is a national leader in accounts receivable factoring services, giving business owners more control over their accounts receivable than ever before. Contact our offices today to start building up your capital reserves.

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3 Things to Avoid When Requesting Business Financing

From traditional loans to alternative funding, there are more types of business financing programs available today than there were but a decade ago. But no matter which type of business financing you are considering, there are some “fine print” items and terms you should look out for, because they can end up placing a strain on your business finances in the long run.

Variable Interest Loans

Loans are a big responsibility for businesses of all sizes. Taking on debt in exchange for capital has a good amount of risk to it. Usually, the terms of business loans are amenable, and are ultimately designed to help businesses stay afloat, at the very least. Variable interest rates, however, can pose a major challenge to businesses. Traditional lenders frequently offer loans with variable interest rates, which usually go up as time goes on. This means loan payments on business financing are not static, so budgeting for monthly installments is extremely difficult. Since many businesses have multiple loans, that means the total amount being paid on each can vary, turning accounting and cash flow into huge headaches.

Balloon Payments

Balloon payments are associated with types of business financing that offer flexible payment methods, such as a merchant cash advance. Flexibility is good for small businesses owners, who might not have high sales or revenue to take on loans with regularly scheduled payments. However, if the balance owed is not paid off before the specified terms are up, businesses could be facing one large payment at the end of it all. This balloon payment is the remainder of the balance, typically with fees and interest, and can often force businesses to take out an additional loan just to cover the amount owed, which places more debt on the books and lock businesses into a debt cycle.

Prepayment Fees

While prepayment fees are not too prevalent among private and alternative lenders, they are frequently attached to more traditional forms of business financing. If your business takes out a loan, and you find yourself in a position to pay off the balance early, that would seem like a wise financial decision. After all, why drag out debt when you can repay the loan ahead of schedule and start rebuilding your business credit ratings? Unfortunately, most lenders generate revenue from the interest rates when they are spread out over months and years, so paying off the balance early threatens to reduce their bottom line. To get as much money from borrowers as possible, lenders use prepayment fees, which are penalties that are triggered when a business attempts to overpay or completely zero out the balance of a loan ahead of the terms.

At New Century Financial, we specialize in accounts receivable factoring solutions for businesses. Our factoring services are designed to get you money from your unpaid invoices faster, with no balloon payments, no hidden fees, and no term contracts. Contact our offices today to learn more.