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Build Business Capital in 6 Ways

Running a business takes money or cash flow. But having significant amounts of reserve cash on hand isn’t always an option for many small businesses. When your business runs low on the cash you might need to pay for that new inventory shipment, or cover payroll, etc., you might consider some alternate ways to get the business capital needed.

Invoice factoring and accounts receivable financing is an option for many small businesses. The benefits are that the business does not accrue any more debt. The factor or lender uses the company’s pending invoices as collateral for the funds. You get the cash you need up front without having to wait for your customer to pay. Once the payment is made, the factor takes their fee as a small percentage of the invoiced amount and the rest goes to the business. Accounts receivable financing handles the customer billing automatically, while factoring allows your business to continue billing and sending the factor the fee upon collection of the amount owed.

Another way to obtain business capital is with a Business line of credit (LOC) . This may be a good option for those businesses with excellent credit and good financial history. A business line of credit is an unsecured form of financing, but the plus side is that you don’t have to pay on the credit line until you start using the funds. With each payment, the credit line returns closer to its original amount.

Vendor credit or trade credit is common across all businesses. The vendor often offers anywhere from thirty to ninety days to repay the invoice. Some vendors offer extended balances where the small business pays some but not all the invoice at once.

Business credit cards offer owners with decent credit to pay for necessary expenses similarly to a consumer credit card. Credit cards should be handled with care. Just like with a consumer card, late or missed payments can increase interest rates. Many business credit cards have 0% for the first year after being issued and higher interest rates later. They are widely used for obtaining business capital quickly without having to apply for more complicated financing.

If your business offers credit cards and/or has a reliable and predictable monthly sales history, a lender may offer your business merchant cash financing or MCA. A percentage of the future credit card sales or other business revenue goes toward the account balance until the cash advance is paid in full.

Although much easier to get approval on than many types of business capital, this form of financing typically retains a larger percentage of future sales than other financing products.  Be cautious and prudent … use this product when you really need funds quickly, other options don’t seem available in the necessary time frame, and you are confident that your upcoming business revenue will be sufficient to cover your ongoing operational expenses AND pay off the MCA.

Obtaining business capital is often a necessary, and even wise thing for business owners to do. The financial products described here are ways to obtain business capital (that are often overlooked) and can be used to make payroll, pay for supplies and keep your business operating smoothly so that it can grow and be even more profitable.

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