Thinking Outside of the Debt-Based Lending Box

For businesses to thrive and grow, they need access to a reliable and renewable source of working capital. Since the earliest days of banking, when businesses needed extra funding, loans were the “go to” solution. In this day and age, the marketplace is moving at a much faster pace than it was even a few years ago, and business owners are trying to avoid debt-based lending to minimize liabilities and maintain a positive cash flow. Traditional financing methods are falling by the wayside in favor of a faster and less cumbersome method.

Traditional Loans and Cash Flow Issues

When we look at loans, taking on extra debt to correct cash flow issues, makes little sense. If cash flow issues arise, loans will only help to ensure those issues come to the forefront, later on down the line. For example, a business is experiencing cash flow issues. Expenses are outweighing the rate at which customers are remitting payment on invoices. To fix this, the business takes out a loan, which places debt on the balance sheet. The capital received is a finite amount, which is used to temporarily rightsize cash flow. Once the funding is used, the business still has to pay off the balance of the loan, which eats into revenue, and those original issues are likely to crop up, making the strain even more severe than it was prior to taking out the bank loan. Some businesses can easily fall into a cycle of taking out consecutive loans to correct recurring cash flow issues until they are too far into debt to come out successfully.

The Alternative to Debt-Based Lending

As businesses try to correct cash flow issues and avoid debt-based lending, accounts-receivable factoring has come to the forefront. Accounts-receivable factoring is not a loan, and provides fast turnaround on open invoices. The process is also much more efficient than applying for a short-term loan. Business owners submit the invoices they wish to factor, and funds are received in a little as one day. This gives businesses the opportunity to correct cash flow issues, accumulate growth capital, and rely less on debt-based lending.

New Century Financial provides businesses with a viable alternative to debt-based lending. To learn more about accounts-receivable factoring, contact our offices today.