Businesses Need Working Capital, But Not All Solutions Are Equal

The health and strength of any business centers around cash flow and the amount of working capital on hand at any given point. Now more than ever, businesses need working capital to maintain operations and make plans for growth as the economy enters the early stages of recovery. However, not all working capital solutions are the same.

Loans are no longer the go-to solution

Loans were one of the main method for businesses to secure the working capital they needed. Over the past decade, and especially in the last year, businesses have been moving away from loans. PPP loans were very helpful, but neither banks nor businesses really took on any risk. Traditional loans place debt on the books for businesses. At the same time, both banks and businesses assume risk with loans. Banks that approve loans for businesses are at risk if entrepreneurs default. Similarly, businesses are at risk because they take on debt, and the monthly payments impact credit ratings. Not surprisingly, in times of economic uncertainly, loan approvals are low, and those borrowers that do get approved have to deal with higher requirements and lower lending limits as banks shift as much risk as possible onto business owners.

Merchant cash advances are losing favor

Merchant cash advances always seem like an attractive way to get working capital when banks are tightening their requirements. Yet merchant cash advances have been dropping out of favor as well. Alternative lenders are offering merchant cash advances with extremely high interest rates and hidden fees to get the most out of businesses. Taking out a merchant cash advance, even though it does not place debt on the balance sheet, can place businesses in a very precarious financial position due to the high interest rates and fees attached to the financing.

Leveraging receivables for working capital

The one reliable working capital solution is accounts receivable factoring. Accounts receivable factoring does not impact the credit ratings of businesses, nor does it place debt in the books. Instead factoring is a process by which unpaid invoices are converted into cash and the funds are made available within 24 hours. This eliminates the need to wait 30 days or longer to get access to revenue from sales. There are also no hidden fees or long-term contracts. Businesses use accounts receivable factoring to boost cash flow and build up capital so they can thrive and grow, regardless of the economic climate.

Find out why businesses use factoring services from New Century Financial for their working capital solutions. Contact our team today.