Small business owners are a diverse group. They span every industry and part of the country — no two are the same. That’s why no two small businesses have the exact same financial needs. What’s so different about them?
- More than half are based out of homes.
- A quarter are 15 years older, or more.
- About 63% take out loans for the purposes of improving cash flow.
- Almost 40% take out business loans to maintain inventory.
- A third seek small business loans because of unpredictable business conditions.
They all have different needs, and their different needs mean that they require different financing solutions. Though most only look at standard business loans as an option, other arrangements, like accounts receivable financing, can actually suit the circumstances of small businesses much better. What is accounts receivable financing, you ask? You’ve come to the right place.
What is Accounts Receivable Financing?
It involves the purchase of accounts receivable at a discounted price. Companies that buy them provide advances to their clients in exchange for the receivables, making immediate cash available to the small business selling its receivables.
What is Accounts Receivable Financing Based On?
Accounts receivable financing differs from traditional business lending, because lenders assess risk primarily by looking at the quality of the asset being purchased instead of the myriad factors considered by banks and traditional lenders. As a result, it’s a sensible option for younger companies that are experiencing success, but haven’t built up much financial background yet.
How is Accounts Receivable Financing Different from Factoring?
Factors assume the titles of accounts receivable, becoming the primary contacts for account debtors. They are paid directly, instead of working through their clients. With accounts receivable financing, however, lenders have no contact with account debtors, unless their borrowers default on loan agreements.
How is Accounts Receivable Financing Different from Merchant Cash Advance?
Borrowers who don’t have accounts receivable and instead accept frequent payments via credit card often choose merchant cash advance. In this arrangement, the lender simply accepts a percentage of each credit or debit transaction between borrowers and their customers, in exchange for a cash advance.
Just like every small business is different, every small business’s financing solutions should be different. Find a plan that caters to your needs if you’re serious about helping your small business stay afloat. Maybe it’s accounts receivable financing, maybe it’s factoring, maybe it’s merchant cash advance, and maybe it’s a traditional loan. Only you know! Do your research and consider your situation carefully before making a decision.