When businesses need financing, they have to weigh a wide range of options. Debt-based or equity-based? Traditional or alternative? Fixed payments or flexible payments? The list goes on, but when businesses want reliable funding for the here and now, as well as the future, they need to consider the difference between single-use and reusable financing.
What Is Single-Use Financing?
In very broad terms, single-use financing provides funding for one purpose. When those funds are depleted, businesses have to go through the application process all over again. Debt-based loans are a great example of single-use loans. The funds are for a specific purpose, such as working capital, equipment, commercial property, or something else. If the borrower deviates from the purpose of the loan, they are in breach of the financial agreement. The funds are given to the business in one lump sum, and when they are used, the business will have to apply for a new loan to get additional funding. Single-use financing typically has diminishing returns, because existing debt and lowered credit ratings from previous loans will reduce the limits on how much money a business can borrow.
Reusable Financing
Reusable financing is an umbrella term applied to funding vehicles that can either be replenished, or that can be provided without consideration of existing debt and credit ratings. Revolving lines of credit fall under reusable financing because the amount available is replenished as the balance is repaid. Merchant cash advances are considered reusable because lenders will advance capital regardless of existing debt. The drawbacks to reusable financing are that they have extremely high interest rates, odd payment structures, and force balloon payments on businesses. There are usually hidden fees and penalties that get triggered throughout the terms of the financing agreements, as well.
Financing that Puts Businesses in Control
Both single-use and reusable financing have their drawback, and businesses do not want to take on unnecessary debt, lower their credit ratings, have to pay hidden fees, or deal with high interest rates. Businesses deserve flexible financing that is transparent and can be used for anything they need. Invoice factoring from New Century Financial provides debt-free financing with no hidden fees. We turn unpaid invoices into cash for businesses without locking them into long-term contracts. There are no upper limits, so businesses can factor as many invoices as they want. We also put businesses in control by letting them decide which invoices – or parts of invoices – we factor.
To get financing designed for your business, contact the team at New Century Financial today.