Every business needs working capital to thrive and grow. Whether it is a new business trying to smooth out uneven revenue cycles, a company trying to position itself for growth, or an entrepreneur looking to make a purchase in the near future, everything depends on how much working capital is on hand. In an age when most businesses are trying to pivot away from debt-based financing, there are still a couple of working capital solutions available. However, not all working capital solutions are the same, and business owners should be aware of the details before they enter any financial contracts.
Using a Merchant Cash Advance for Working Capital
Merchant cash advances are often pushed as the shiny, easy, and flexible alternative to loans. On the surface, a merchant cash advance does not place debt on the balance sheet, has no fixed payments, and does not require any collateral. As the name implies, it is an advance of working capital that is repaid from future sales. However, there is a lot more to a merchant cash advance once you dig a bit deeper. First, a merchant cash advance has very high interest, because there is no collateral involved. Additionally, there are typically additional fees attached. Between high interest and fees, it is very difficult for a business to repay the entire balance within the terms of the agreement. Anything owed at the end of the merchant cash advance agreement becomes a balloon payment, which includes the balance, interest, and fees. In short, a small business that needs working capital to correct cash flow issues, or a company that does not have a high volume of sales, can wind up in a worse financial position by taking out a merchant cash advance than by using other working capital solutions.
Using Invoice Factoring for Working Capital
Comparing merchant cash advances to invoice factoring is like night and day. While a merchant cash advance is relatively new, invoice factoring has a proven track record going back for as long as businesses have been issuing invoices. The major difference between the two is that invoice factoring has no hidden fees, no ongoing payments, and no balance to be repaid. Invoice factoring is a simple exchange of unpaid receivables for cash. Businesses in every industry use invoice factoring to boost cash flow, build up working capital reserves, and to avoid taking on unnecessary debt. There are no balloon payments, no penalty fees, and no ongoing high interest rates.
New Century Financial provides comprehensive invoice factoring with more freedom than other working capital solutions. We do not lock our clients into long-term contracts, and we let them choose which invoices or parts of invoices get factored. Additionally, we make funds available within 24 hours so you can use your working capital for anything you need without worrying about repaying anything. Contact New Century Financial today to get the working capital you need from a fast, easy, and transparent factoring company.