flexible small business funding options

Flexible Funding Options for Small Businesses

Hi and welcome to The Money Factor. On today’s show we are going to be talking about flexible business funding options and whether you as a business owner are looking at the right solution for your business.

Can You Get Financing After a Drop in Revenue?

We are talking about some of the challenges that the business owners that we speak to daily are telling us about. Specifically, we are discussing whether the solution for their financing needs accommodates a drop in revenue. A drop in revenue scares many business owners. It is a common fear. There are different types of funding options, and not all of them are as flexible as they need to be.

Is Bank Funding Flexible?

A bank line of credit may have a covenant in there that requires you to have a certain net worth ratio or something similar. Obviously, last year was particularly difficult. Lots of people have seen their revenues drop. People are calling us that are worried that they will breach some of those covenants. They wonder whether there are any other solutions that can fund their business. Bank funding can be rigid. There are rules and restrictions, and past revenue will play a big factor. Some other types of flexible funding look more towards the future.

If you worry about your bank financing being rigid, we are happy to help. One way factoring is different to bank lending is that we look at your receivables. We are looking at your customers and their ability to pay, as opposed to your balance sheet or your personal credit. Balance sheets and credit are secondary items for us. Our qualifications are much less about your balance sheet because it is not relevant. Instead, we look to see what your business needs to grow.

How Does Bank Financing Compare to Other Flexible Funding Options?

Factoring is flexible funding, and we can grow with you. It is very easy to qualify for. You do not need to worry about running out of funds. If your revenue has dropped, there is no need to fear that you will lose your funding facility. Banks, due to the way they are regulated, may not have the flexibility that you need. If you lost business last year and now your bank is restructuring your facility, maybe you need to look for a different form of finance.

There are plenty of alternatives. Factoring is just one, but we can have a conversation with you and look at your options. You may find that factoring will help you turn things around. We can get back to that point where you are bankable again. Then, you will have been able to go through a steep decline in revenue, fix things, and get ready for the next growth curve.

How Flexible is Equipment Financing or Funding?

Another thing that many people need is equipment financing. Whether you are a trucker, a restaurant owner, or any kind of business owner that needs asset finance, equipment financing can help. It is not something we do here in-house at Eagle, but we work with many partners that offer equipment financing. It is important if you have a lease on a piece of equipment to keep those payments going, especially if that equipment is essential to your business. That requires cash flow. You need smooth cash flow to make sure that those lease payments can be made.

How Does Equipment Financing Compare to Other Funding Options?

Equipment financing is typically less flexible than factoring because you make monthly repayments. However, factoring can work alongside equipment financing. It’s a different asset class since we work with your receivables. Since equipment financing is very structured, factoring is often a good hand-in-hand solution that provides flexibility. When you have equipment finance, you can look at other options such as factoring that will give you the cash flow to make those structured equipment finance payments. We want to make sure that those payments are being made, so if you need to smooth out your cash flow then look at factoring alongside leasing.

Factoring is for your receivables and for your working capital. It will free up your cash and smooth your cash flow, so that lease payment will not hang over your head. If the payment is due at the end of the month, you have the money ready to make that payment.

Is a Line of Credit a Flexible Funding Option?

Another form of finance is a line of credit. Whether that is an ABL (or asset-based lending) facility or a bank facility, it is a line. So, you have flexibility up to a certain amount to draw funds. Obviously, it has a fixed limit. If you are growing, you may feel restricted by your credit limit. It is difficult to renegotiate the terms, particularly if you are growing quickly. A line of credit is appealing, but it may not have what you need as a business in terms of those flexible options if you need to grow.

Many business owners think they want a line of credit because it replenishes as you pay it back. The drawback is that it is difficult to get a large enough line of credit. Further, if you do need to increase your line, you must jump through a lot of hoops. It is one of the more attractive but in some ways less flexible funding options.

small business funding comparison

They sound good for your business, and they are to an extent. They are going to be cheaper than many alternative options, but they will have a lot more strings attached as a result. So, you get flexibility so long as you maintain that balance sheet, liquidity, and profits. If you cannot for whatever reason, maybe your revenue is falling, it could be a straight jacket for your business. A line of credit is not the answer to everything you need. Look at alternative financing options that are perhaps based more exactly on the state and size of your business now.

Is a Merchant Cash Advance (MCA) Flexible Funding?

Merchant cash advances (MCAs) come up in nearly every conversation about small business financing. People have been online and able to take advantage of them. They are very easy to obtain. You can fill out an application with a few questions, and the money is in your account. Of course, this comes at a cost. They are expensive. A major problem with them is that many people fall into the trap of making daily or weekly repayments. People fall behind on those payments quickly. Merchant cash advances are fast, but they are expensive. In the long run, they hurt your cash flow more. You are obligated to pay back something every day, regardless of whether you have revenue every day.

Are Stacked MCA Loans Flexible?

Another huge issue is that business owners are taking more than one MCA. The more merchant cash advances you take, the bigger hole you dig yourself in. Usually, an MCA will hurt your business more than it will help. People think that they are not as expensive as they look because they want to believe they will have the money available to make those frequent repayments. Then, they have a bump in the road, whether it means losing a customer or a customer pays late, and there is not money in their account ready to make that payment. That is when the problems start, and they fall behind. They go into a default rate. Things are far more expensive, and maybe they can renegotiate the facility. Maybe they cannot. This is why it is important to look at alternatives for your business.

Taking another merchant cash advance is not the solution. It is simply digging that hole. If you are in that kind of trap, please give us a call. We have solutions that can help get you out of that and into something that is going to be more in tune with your business. Instead of having a loan repayment to make on a daily basis, factoring can be a great alternative.

Is Factoring Flexible Business Funding?

Obviously, we are a factory company. So, full disclaimer: we are going to be talking to you in glowing terms. We live, eat, and breathe this daily. We are passionate about it. Factoring is wonderful because we do not look at the past. We look truly at what your business is going to do. Our facility sizes are based on your growth. We have a lot of flexibility because we can grow your funding limit as quickly as you need us to. We look, not at your personal credit, not at the financials of your business, but at who your customers are. There are no repayments to make. It is easy to qualify. You can grow as you need to, and there is not a lot of strong language or covenants like a bank would have that really would restrict your growth.

We are here to support you as you grow, and it is a tool that you can use versus something that is going to hold you back. We look for ways to help you and get you approved, not for reasons why we cannot approve you. So, one of the things we do is ask you about your business. Tell us about your customers, your revenue, and your plans. We want to hear from you and what is driving you and your business. Then, we want to make sure that our solution is going to fit and become an extension of your business. More than anything, we want to be that trusted funding partner. Clients that sign up with us stay for many years because it just works.

What Makes Factoring Flexible Funding?

We get it right from day one, and we can work in conjunction with other types of funds. We fund many sectors. You can have some equipment financed to pay for your janitorial supplies or your truck and we will still provide you with strong cash flow. That will allow you to take advantage of what is out there. So, the flexibility of factoring extends to being able to fund alongside some other options. The most important thing is when you are growing and you need to renegotiate, we are more than happy to do that. It does not require a whole bunch of underwriting once you are a client. We understand what you are looking for and our facility is designed to accelerate your cash flow. That is going to help you grow.

Factoring Can Fund Rapid Business Growth

You are not going to be held back from taking on bigger orders or finding new customers because you are going to know that the funding is there. As soon as you complete that sale and make that delivery, you can move on to the next one. So, many of our clients do grow quickly, and we are more than happy to increase their facilities and reduce their price of factoring each time. It is a very quick and easy process, so it is one of the much more flexible forms of finance. As long as we are in place on the receivables in terms of the collateral, that is all we need to be able to work with other financing options you may have. We offer a lot of flexibility and not many strings in terms of approval. It is a quick process.

Eagle Offers Customized Funding Solutions

One of the benefits of factoring with Eagle specifically is that we can customize your facility to be a fit for you. A lot of factoring companies have set terms. We can customize our facility: the term length, the volume, and the pricing as well to make sure it is a solution that is the best fit for your company. That is why we ask the question, “tell us about your business.” We want to understand what you are looking to do and how you are looking to succeed, so that way we can be a good fit and the right financial partner for you and anticipate those needs as you grow.

Can Factoring Work with Other Financing?

You may be wondering if factoring can work with your existing financing that you have in place. We have a lot of calls right now from people that have taken out PPP money, and they can still obtain factoring alongside that. The SBA are working super quickly to provide what we require. What we would need is a subordination on their hold on your receivables. So, if they have a filing (a UCC-1 filing) on your A/R, they will release that in our favor so that we can come along and fund you. Remember that a PPP Loan should also be forgivable if you meet the criteria and fill out the forms. That is another thing we can help you with.

PPP loan program small business funding

Can You Have a PPP Loan and Still Use Factoring?

Yes. If you have a PPP Loan and commercial receivables, you can absolutely factor as well. The same is true if you have an EIDL loan, another government form of finance. We can ask for a subordination on the receivables. They will have a blanket filing on that collateral, so it will work very well alongside that. The PPP and the EIDL loans are a temporary fix, but they will not last forever and they will run out. However, factoring can be a nice compliment and then turn into your long-term solution. We are just looking at the receivables so whether you have government funding or an equipment lease, it will work extremely well alongside them.

Can Factoring Work with an MCA or Line of Credit?

If you have other forms of finance such as an MCA loan or a line of credit, they may already have a claim to your receivables as part of their collateral. If you pledged that to them, we would need to look at whether they will subordinate that to us or not. Then we can come in and provide additional funding. We have been very successful doing that for a number of clients. Maybe you have some real estate and the bank is prepared to continue their line just on the real estate and a personal guarantee. They can release the receivables and we can still work with you. So, it all depends on your personal circumstances and your particular circumstances of your business as to how we can carve up the collateral and best help.

Factoring Can Work with Other Lenders to Fund Your Business

We are very flexible in working with other lenders for your business funding. If you have a lender in place, we will happily work with them. We can typically find a solution so that you are able to factor as well as keep your other financing. Also, we do not want to have a detrimental effect on your existing financing in any way. We are always going to want to work in partnership with those forms of finance for you and make sure that our funding is going to provide you with additional funding. That is why you would come to us. You simply need better cash flow. We have a network of lending partners as well, so if you come to us for factoring and you have a need for another solution, we could put you in touch with another lender as well.

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