Starting a successful business entails spotting a gap in the market that needs to be filled. The gap exists in terms of a shortage of a certain product or the complete lack of it. After identifying a business opportunity and selecting the target market, the next important step is to devise a financial strategy. This should be made with business growth in mind. This is because even after the business picks, it may require additional finance time after time to cater for various business needs such as growth and expansion.
Due to their size, small and medium business may encounter some difficulty when raising additional finance. Some methods have, therefore, been put forward to facilitate easy financing of small and medium business. Connect with Doug Foshee and his company for more information about business financing opportunities. Below is a list of the methods:
- Asset based lending:
- Purchase order financing:
Factoring is also referred to as “account receivable financing”. As the name suggest, factoring is a method used by business to raise finance from their account receivables (debtors). Factoring involves three parties: the business, the client to the business (a debtor), and a factor. The factoring procedure is easy. After the business sells on credit, it sends the invoices to the factor, who advances the invoice amounts to the business but deducts a certain percentage to cover for collection risks. After sending the invoices to the factor, the factor in advancing amounts ranging from 80% to 95% of the invoice amounts. It should be noted that the factoring charges vary from factor to factor.
The greatest advantage of factoring is that a business gets money in a short span of time. Money that could have been received after a month or two is received in twenty-four hours.
This is a way of acquiring finance mostly used by small and medium business with a significant asset base. Asset based lending, as the name suggests, refers to a method of business financing using the assets of the business. The business acquires a loan, which is secured by its assets. In most cases, lenders use account receivables, inventories or equipment when offering the loan. The amount of loan given may vary from 85% to 50% of the assets offered as collateral. Unlike in factoring, asset based lending creates a financial obligation, which is subject to an annual interest. The interest rates may vary from lender to lender.
The use of purchase order financing has grown over the years. A purchase order is a document offered by a buyer to a seller, describing the products he offers and at what prices. When the seller accepts the order, a contract is created. Purchase order financing comes in when a business receives an acceptance of a purchase order, and the customer pays after some time. In case the business lacks enough money to pay the suppliers, it may either forego the order or resort to purchase order financing where the suppliers are paid by a third party and the business takes the order.