How To Finance A Small Business Without Going Into Debt

Unless your parents are wealthy, or you have a rich uncle or aunt from whom to borrow money, once you start a small business you will quickly find that you need more money than you have to keep your business going.

Many entrepreneurs seek financial help from their local banks. Those with good credit, go into debt using their homes as collaterals for loans to finance their businesses. An alternative source of financing not often thought about that does not require going into debt is called ‘account receivable financing, or factoring’.

• Account receivable financing is available only to businesses that have been in operation for at least a year, and have sold goods or services to customers on credit – usually on 30 – 90 days credit terms. The sum of the face value of the unpaid invoices is the ‘account receivable’: or said another way, money that the small business owner must wait 30 or more days to receive. 

• Factoring enables a small business to receive immediate cash for its unpaid receivables by selling them to a factoring company. The factoring company pays cash for the receivables to the small business owner less a fee called a ‘discount’, as well as interest where applicable.

• Factoring differs from a bank loan in 3 ways: emphasis is on the value of the receivables not on the credit worthiness of the company selling them, factoring is not a loan – it is the buying of a financial asset, and a bank loan involves 2 parties, but factoring involves 3 parties: the factor, the seller and the debtor.

• Ownership of the receivables is transferred to the factoring company upon conclusion of the sale, indicating that the factor accepts all the rights and risks associated with the receivables. Usually the factor sends bills to the debtors and receives all payments. If the debtors are unable to make payment due to bankruptcy, the factor cannot seek payment from the seller where a ‘no recourse’ factoring was agreed to.

• The cost of ‘no recourse’ factoring is higher because the factor assumes the entire risk of non-payment by the debtors. However, the seller can reduce his factoring cost by entering into a ‘recourse’ factoring agreement where in the event of non-payment the seller must buy back the bad invoices with good ones.

• A factoring transaction has 3 major parts. The ‘advance’ is a percentage of the total receivables paid to the seller on submission of the application. The ‘reserve’ is the balance of the receivables held until the debtors make full payment. The ‘fee or discount’ is the cost of the transaction that is deducted from the reserve before final payment to the seller.

• The factoring company may also charge the seller interest based on how long it must wait to be paid by the debtors. An estimate also made for the amount that may not be collected due to non-payment is added to the mix in determining the amount the seller will receive.

• The objective of the factoring company, as all businesses have, is to make a profit; so it is vigilant in avoiding losses due to non-payment. Consequently, the factor thoroughly examines the credit worthiness of the debtors, buying only those invoices with a reasonable chance of been paid.

• Factoring is a trade off between the return the seller hopes to receive from using immediate cash to pay suppliers, rent, meet payroll, expand production or boost sales promotion, and the cost of using the funds raised by factoring. Obviously, where the cost of using factoring is higher than the return on investing the funds, it is not a favorable trade off for the small business.

• A small business may also use the funds from factoring as bridge financing while it waits for approval of venture capital, or a loan from a bank, as some of these financial transactions take weeks to release cash to the borrower. Usually, a factoring company will release cash to the seller within 48 hours.

• The benefits of factoring is that many small businesses do not meet the financial requirements of traditional lending institutions, but have a roaster of financially strong customers that they can leveraged to get immediate access to cash without going into debt.

While factoring is an attractive alternative of raising operating capital, the costs associated with it may be higher than traditional loans, since the factor’s risk is higher, and has to provide others services including credit check and collection services as part of the total transactions.

Therefore, use factoring with prudence. Do you need cash immediately? Can you arrange credit terms with your creditors that allow you time to collect your receivables before paying them? Does the return on the funds raised by factoring justify its use? A small business consultant can provide answers to these questions. Be sure to talk to a consultant before signing a factoring agreement.  

How To Be Strong After A Break Up

One of the few things with a high probability of occurring in contemporary life is that a marriage may not last “till death do us part”. As you will not depend on working with the same company till you retire, so too, regrettably, remaining married to the same person for the rest of your life is fast becoming a thing of the past.

Up to 60% of all marriages in the U.S. end in divorce within a year: not to mention the millions of break ups that occur among unmarried couples. For some the wounds of their broken hearts are still too fresh to forget, and for others the pain still lingers on years after the break up.

• Should we go into marriage convinced that it will end, and therefore, be preparing for the inevitable, even as we say our wedding vows? No, that will take away the excitement, and change the nature of marriage. We should rely on our inner strength, personal character and the life we have lived to fortify us at the time of a break up to endure it, learn from it and triumph over it.

• Should you feel rejected, hopeless, shut all the doors and windows and crawl into a dark corner after a break up? If you feel that way, not only has your marriage come to an end, but your life will soon too. Pick yourself off the ground, dust off your sleeves, and know that a break up is not an end, but an opportunity for a change in habit. Start doing things differently, from today forward.

• Stop thinking about the great moments you had with your ex: they cannot help you now. Write down on paper the reasons for your break up. Make them as detailed as you can. When you write down your thoughts they stop floating around in your head, and cease to hurt and frighten you.

• After your break up with the one person you sacrificed all others for, you will be lonely: if not physically, then emotionally. It is time to socialize and make new friends. Join a poetry club, an art club, or a sports club. Ask questions, make conversations, exchange phone numbers with people who share your interest and keep in touch.

• If you are feeling empty and need emotionally support; offer to help a friend or neighbor with some project. Give your time and effort to help others solve their problems. In doing so, you will become involved in their lives, and in turn they will become involved in your life.    

• Meantime, check your body mass index (BMI) to see if you are overweight or not. It is a fact of life that when we feel overweight, we feel less sure of ourselves, and often fail in our relationships when we should succeed. Talk with your doctor or dietitian to recommend a weight loss program for you, and once you get the weight off, make it your priority to keep it off.

• When news about your break up reach your family and friends, you will get advice from all quarters. Be polite and listen to all the advice offered, sift them, keep those that are relevant and helpful to your present condition, and throw out the rest. Spend more time with people whose conversations motivate you to be strong and live your best life.

• Sometimes the pain of a break up is so excruciating that we are absolutely convinced that our best life is behind us. We look at ourselves and see nothing but the empty shells of our former selves. Nothing could be more wrong. Our best life is always ahead of us. Think about all the things you are passionate about and wanted to do, but never got around to doing. Learn a new skill. Take cooking lessons, get involve in sports, try painting, find a hobby: the opportunities to have fun and be happy again are endless.

• It is a human trait that when we are very happy with our lives, truly happy: we are unable to keep all that happiness to ourselves. Soon we begin to look for someone with whom to share our happiness. Even after an excruciating break up, after time has passed and the dust has settled down, you will begin to date again. Be prepared when the time is right.

• Don’t get too emotionally involved in your new relationships. Keep the relationships light and simple. You will need up to 2 years to heal the emotional wounds caused by your break up. Rushing into a serious relationship too soon will be setting you up for another disappointment that will open old wounds, and make your condition worse than before.

Your children, if you have any, will also need time to understand why dad left home and didn’t come back, and to begin their own emotional healing process. You and your ex would have had time to reflect on your mutual faults and strengths, and on whether coming back together is what you need to do to heal the whole family.