As the world reopens after the COVID-19 pandemic, you are probably eager to get your own business back in shape. But with so many obstacles and shortfalls over the past year, what can you do to get the financing you need? Despite inflation concerns and traditional loans remaining difficult to acquire, there are still ways to get started again.
Whether you are a freelancer, contractor, brick-and-mortar store, or ecommerce website, there are plenty of indirect financing options available. Here are a few ways indirect lending can help you reopen your business’s doors confidently.
Minimize Invoice Lag With Accounts Receivable Financing
Even before the pandemic, contractors have often dealt with invoices lagging behind schedule. This can put a strain on trying to pay their own bills and keep their business afloat. No matter how patient you are, waiting for that invoice to go through can be painful on an empty stomach. There is where accounts receivable financing comes in handy.
Accounts receivable financing is a small loan worth the same amount as your incoming invoices. By leveraging your receivables, you can get your money much sooner to cover your expenses in the meantime. Then when the invoices clear, you pay back the balance of the loan.
This is an especially useful tool for contractors who get paid on project completion or with long billing cycles. Instead of waiting weeks, getting your money through accounts receivable financing ensures you can pay your bills on time.
Great For:
- Freelancers who rely on invoices without a set schedule.
- Government contractors whose invoices are filled in 30-45 day cycles.
Repay Loans Over Time With Merchant Cash Advances
Need some extra capital for your business and want to repay it passively over time? Merchant cash advances are great for that. If your business processes point-of-sales transactions through debit or credit cards, you can use your customers to your advantage.
A merchant cash advance is a short-term loan (12-24 months) that is paid back through debit and credit card transactions from customers. Either a fixed rate or percentage (depending on the loan) is applied to each transaction and used to pay down the balance. Merchant cash advances are great for newer businesses that do not have the established credit for traditional business loans or just need a quick cash boost. With repayments deducted automatically from customer transactions, these kinds of advances are stress-free — as long as you keep customers coming in.
Great For:
- Retailers who need a quick cash injection for new equipment, payroll, marketing campaigns, or other business uses.
- Businesses that serve customers and want repayment to happen automatically with each purchase rather than having to pay fixed monthly payments.
Expand Your Business With Purchase Order Financing
Sometimes too much growth too quickly can cause a lot of cash flow problems for your business. For instance, if your product gets noticed by a major retailer who wants to sell it in their stores. You could handle maybe 300 units a month but they want 30,000 as soon as possible. Even if you have the equipment and manpower to produce, you might not have the capital to buy the materials you need. That is where purchase order financing comes in.
Purchase order financing is a type of funding where the lender buys the purchase order from the borrower. From there, the lender pays the borrower the value of the order so they can afford to buy the materials to complete the order. Once the order is completed and the borrower’s client pays them, the borrower pays off the balance of the purchase order financing.
What makes purchase order financing a great tool is that the financing is based on the client’s credit, not the business producing the order. This is especially useful if you are a small business whose hard work is finally getting the notice of major retailers. Still, if you have the means to create, purchase order financing will make it easier to scale your business.
Great For:
- New or small businesses looking to scale up their operations.
- Businesses whose material costs are beyond their current capital, but have the means to produce more if they had those extra materials on hand.
Get the Tools You Need With Equipment Leasing
If you have the opposite problem with plenty of materials but a lack of equipment, equipment leasing might be a route to consider. Instead of shelling out hundreds of thousands of dollars for specialized equipment, leasing can keep costs down while providing you an ad-hoc solution to your production needs.
For new or small businesses, buying new equipment to keep is a major expense. This is doubly true if you are in a heavy industry; construction, agricultural, and manufacturing equipment accumulates wear and tear quickly. With equipment leasing, you only pay for the equipment for a set term and any usual wear and tear costs are usually built in. While you might be tempted to buy your own equipment to build up assets, a lot of heavy equipment depreciates quickly and has a low aftermarket value.
However, if you need equipment that your business needs for everyday use, there are equipment financing options available too.
Great For:
- Businesses that need specialized equipment only a few times out of the year.
- Businesses that use heavy machinery but do not have the infrastructure to keep it maintained all year round.
Stock Your Sales Floor With Floor Plan Financing
On the topic of heavy equipment, trying to keep your sales floor full can be a challenge if you retail anything from vehicles to appliances. Besides, there are few sadder sights than a dealership with a barren lot or an empty sales floor. If you want to compete and keep your dealership looking healthy, consider floor plan financing.
Floor plan financing is a short-term loan used by businesses with high-cost inventory. This could be as big as industrial construction equipment or as small as home appliances and furniture. Unlike other kinds of loans, floor plan financing leverages the inventory you are purchasing as collateral. That means you are buying the collateral for the loan you are using to buy it in the first place. Because trying to keep a sales floor packed with the latest equipment and vehicles is a huge financial undertaking, floor plan financing makes it easier to get what you need to succeed.
This kind of financing also incentivizes good sales techniques. The quicker your salespeople can make a sale, the less interest you have to worry about on the loan. Moreover, floor plan financing gives you flexibility, acting as a revolving line of credit to then purchase inventory to replenish open spots on the floor. This gives dealerships greater control over how to use their financing and encourages you to focus on what you do best: helping customers find the right products.
Great For:
- Dealerships looking to expand their business.
- Large consumer goods and appliance retailers that need extra help filling out their sales floor.
Need help finding out what financing options are available for you and your business? Contact Web Finance Direct today and our experts would love to help you find the right financing tools for you and your goals.