One of the challenges of getting started in any type of
business structure be it corporation, partnership, or sole
proprietorship is getting financing to start or to maintain
daily operations. Typically you will have determined what
you need for starting up and maintaining operations in your
business plan and will go seek a loan from commercial
lenders. And the lenders are all different too. They all
have different requirements and some have perks to offer
for your business. But before you shop for a lender you
should know what is available in the way of corporate
business financing.
When shopping around for commercial loans and trying to
figure out this corporate financing game, the topic of cash
flow will no doubt be referred to. Cash flow is the one
aspect of a business that can make it work and lack of it
can destroy it. If you have any experience with business at
all, you know that there will be a delay from the time a
business first starts to when the invoices start getting
paid. Yet during this time, the corporation still has bills
and salaries to pay. Expenses also include paying suppliers
just so that they can fill their own purchase orders. Try
explaining cash flow to your employees when they have not
been paid—not a good scenario. Or, try explaining to
your supplier why you have not paid its invoices. This is
why you need corporate financing.
One corporate financing option you might be offered has to
do with loaning you money based upon the number of
outstanding purchase orders you have. They way it works is
the suppliers you use to fill your purchase orders are paid
directly by the lender. This type of commercial lending
program gives you cash flow because your suppliers are
taken care of and you can use money for other things. Plus,
you can take advantage of any supplier early payment
discounts.
Another popular form of corporate financing is known as
receivables factoring. How this works is a receivables
factoring company will loan your corporation money based
upon the value of receivables still open. Your invoices are
an asset and are basically collateral for the loan.
Factoring is great if a corporation does not want to incur
further debt but needs a portion of the money it is owed in
order to conduct day-to-day business operations. The
factoring company will verify the invoices you want to
factor and then loan you a significant portion of the money
and hold back a small percentage. The end customer you have
invoiced will actually pay the factoring company (even
though the check is still made out to your company). When
the invoice is paid, the amount held back is returned to
your company and the factoring company takes its fees from
it.
And of course there are commercial loans for your
corporation that is based upon your fixed assets. These
loans are secured by equipment or commercial real estate
your corporation holds so you will probably get longer
payment terms and lower interest.
And commercial lenders may have other programs to help you
keep your cash flow at a state that is good for the health
of your business without incurring a lot of burdensome
debt. Shop around and get all the details before making
your decision and prepare a good business plan.
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My name is Tom Husnik. I live in Minnesota. My web site is
at http://www.husnikfinancialonline.com/
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