ways to finance a business

5 ways to finance a business in a slow economy

The business funding landscape is continually evolving, in part due to economic shifts and business demands. Here are some innovative ways to finance a business or your next strategic plan. 

ways to finance a business

 

Gone are the days when commercial banks were the only safe lending choice and even then so many rules and regulations made it hard for SMBs to obtain a loan. According to Dun & Bradstreet, bank loan success rates stood at 32% (initially 41%) for small businesses and 89% (down from 95%) for mid-size companies. 

Thankfully, there are many alternative sources of funding out there besides traditional loans that SMBs can use to raise capital. Many have been around for some time, but others are relatively new and emerged over the past several years.

Keep an eye on the terms of any funding deal, as some will be more favorable than others. Here’s a quick overview to help you understand the different types of funding and lending:

Five ways to finance a business in 2021

ways to finance a business


1. Invoice factoring

Invoice factoring is one of the most common ways to finance a business. You get quick access to cash by selling your accounts receivable to a financial institution or factoring company (also known as a factor). Businesses often use a factoring company to help inject cash flow and manage slow-paying customers. 

As part of the process, the factor pays a portion of the accounts receivable — typically 75% to 80% of an invoice — and keeps the remaining amount as a reserve. Once the final invoice is collected, you’ll receive the reserve funding back (minus a small fee), keeping the cash flow…well, flowing. The higher the invoice capital or the more credit-worthy the customer, the more you’ll be able to borrow. 

The main upside to invoice factoring with Liquid Capital is that you receive a partner who is willing to take the time to understand your business. This is important when there are a multitude of considerations and implications, with various choices and options that you might not be aware of yet.

Related fact: While invoice factoring is in wide use in today’s business world, it’s one of the oldest funding methods, dating back to ancient Rome!


2. Peer-to-peer lending 

You may have heard about this lately, and we recently explained it in another article. Peer-to-peer lending, also known as social lending, connects investors and borrowers together on a digital platform. The platform acts as a middleman and doesn’t actually give out any loans. Instead, it facilitates the lending and brings together a community of like-minded individuals that share an entrepreneurial zest.  

A growing number of P2P business lending platforms offer a diversity of loans and act as a pitching service to connect businesses with investors. This type of funding is geared towards more established companies looking to grow and typically requires a thorough pitch deck to showcase. Not all businesses will be at the right stage to focus on this, nor have the time and capacity to fulfill all requirements. 


3. SBA microloans 

If you’re based in the U.S. you can apply for a microloan program that awards up to $50,000 loans to help grow your business. North of the border, there are also many microloan options for Canadian businesses. 

These loans are made available through nonprofit community-based organizations and help you increase working capital and buy inventory, supplies or machinery. They also have relatively low-interest rates, generally between 8% and 13%. 

The upside to this type of funding is that lenders may also provide some degree of consultation services, so you’re able to get direction and industry knowledge to move your business forward. However, the one catch is that some applicants may need to go through training before their loan request is even considered, to make sure they are exemplary candidates and deserving of the funding. If you’re in need of fast funding, consider the timing.


4. Fintech lenders

ways to finance a business 3

Many online lenders have emerged due to a rise in fintech capabilities. These lenders provide smaller loans, credit options and quick loans through their online storefront.  

Many SMBs see them as a useful substitute for an immediate cash-flow problem, but doing business with these lenders has its own set of benefits and limitations. The trick is to do your research and understand what kind of lender you’re dealing with. 

Look into their online reputation, and most certainly take the time to review customer feedback. When researching an online lender, you should also look into their contract terms, interest rates, along with any additional fees and charges. And always find out if an online lender will register security against your business. Some may even do this for a basic application — even if you don’t borrow money from them — which can put you in a worse position. Also consider whether expert consultation would be helpful in your circumstance – someone who will take the time to understand the bigger picture and goals for your business. Fintechs are generally transactional, which can work in some situations if you know exactly what you need.


5. Merchant cash advance

If you accept card payments, you can apply for a merchant cash advance loan (MCAs). When you borrow through this method, a lender gives your business cash upfront in exchange for a commission or a part of future credit card sales. You pay back the loan from the percentage of the business’s daily transactions. 

The biggest downside to MCAs is that they can get quite expensive. In fact, based on this estimate, they can have annual percentage rates (APRs) as high as 350%. Business owners in a tight spot that go for this lending option are pursuing one of the costliest forms of financing.. 

While MACs can offer a quick fix for cash flow problems, they are in no way a long-term solution. How do you expect your business to thrive when someone’s eating into your profits every single day?

While there are a few options for SMBs to consider in solving cash flow needs, it’s recommended to slow down and look a little deeper at the options – and the funding providers – before deciding. 

Always work with a partner who is willing to take the time to understand your business and your needs. A good partner will have your back and keep you protected. 

 


At Liquid Capital, we understand what it takes for small, medium, and emerging mid-market businesses to succeed – because we’re business people ourselves. Our company is built on a network of locally owned and operated Principal Offices, so whenever you’re talking to Liquid Capital, you’re talking directly to your funding source and a fellow business person.

 

Images by Adobe Stock and Pixabay: Featured, body 1 and body 2

resiliency during COVID

Moving Forward – The power of resiliency in the era of COVID-19

Here are three ways you can win big with resiliency during the COVID-19 pandemic.

resiliency during COVID

 

“Resilience” is defined by Harvard Business Review as “The ability to recover from setbacks, adapt well to change, and keep going in the face of adversity

To say that we’re experiencing substantial economic and social changes would be an understatement. At the center of this maelstrom is a viral enemy that has affected the globe in a profound and deadly way. 

It has dramatically challenged our healthcare capabilities and our ability to support the supply chain. It has crippled numerous industries, with resultant massive unemployment, while overtaxing industries that have been charged, willingly or unwillingly, with providing crucial goods and services. It has forced a social society to be distant and rightfully fearful. It has exposed our vulnerabilities on many different levels.  

Having to deal with so many unknowns, both current and going forward, challenges our emotions and ability to cope. No one knows for sure what the “new normal” will look like and what will be required to adapt to it. 

To be sure, America and the world are being severely tested. Resiliency will help us battle through and persevere.     

Human connection: The key to overcoming the pandemic 

While the above scenario is troubling, to say the least, there is a massive effort to contend with it and somehow prevail. 

Heroic actions by healthcare professionals and first responders, as well as governmental efforts to shore up the economy and assist its citizens in their time of need, give rise to the fundamental mantra that provides needed solace at this time.

Together, we will get through this crisis.   

To be sure, there’s no lack of commentary by the news channels, medical experts, economists, money managers, government agencies and the like that hypothesize and even predict what the U.S. and the world will look like going forward. 

The overall impact will not be known fully for some time. Some businesses will fail altogether, some will have reduced capabilities, and others will change their industry focus and operations.

From the supply chain, all the way through to the end customer, every business will be affected in some way. 

That impact isn’t necessarily all in the red though. While we’ve already witnessed the effect this crisis has left on many prominent industries, there are a select few — such as eCommerce, augmented reality, robotics and e-Learning — that have been positively impacted.  

There’s a need to pivot strategically 

Not surprisingly, the psychological and emotional impact on business owners has been profound. Being able to deal with the ongoing challenges posed by the pandemic while trying to maintain some semblance of a positive attitude can be daunting.  

Making the situation feel worse is the unknown. How long will this go on?

To survive and surmount this scenario, business owners need to steel themselves with a can-do mindset combined with a keen focus on situational analysis, flexibility and innovation. Decisions need to be made about potential changes in the business model, processes, markets, customer profiles and requisite resources.

For business owners and leaders, some changes will require minor adjustments while others may  require significant realignment of teams and priorities. The key is for the business owner to act decisively.   

Recent research by IBM reasserts that COVID-19 has forever changed how companies around the world operate. Executives are shifting their top priorities as they plan for the future, with 55% reporting the pandemic has permanently changed their organizational strategy. Another 60% indicate they’ve adjusted their approach to change management and even accelerated process automation. 

One way or another, 2021 will be different from last year

resiliency during COVID-19

Throughout this most difficult period, and likely continuing for some time, business owners will need to continue to reaffirm their resolve to move forward.

This can be challenging, given the range of issues affecting their businesses. In the face of adversity, resiliency is the common thread with those who will find success. Being able to visualize opportunities where none appear to exist, will also improve the likelihood of success.  

And as the old saying goes: When life gives you lemons, make lemonade. 

This speaks to the spirit of an entrepreneur imbued with the will to win. History is replete with many examples of individuals and businesses facing dire circumstances—only to come out stronger and even more determined to succeed.  

As we get to the other side of this crisis, the process will ultimately make many business owners more durable and wiser. Experience, although sometimes painful, provides a frame of reference for the future. Hopefully, we won’t have to endure a similar situation going forward, but the experience should better prepare business owners to address their challenges and seize opportunities in a more informed way.

 


When working with us at Liquid Capital, clients not only receive funding but also gain access to a strategic business partner who works alongside them to make sure their business is thriving. As Liquid Capital Principals, we work closely with clients and help them address concerns regarding business operations outside of funding.

If you’re interested in learning more about us, or to connect with a local Principal near you to chat about your business funding needs, click here

alternative business funding

What kind of alternative business funding is right for you? Get your facts!

What are some alternative business funding options you can explore?

alternative business funding

Have you noticed that business funding has changed drastically over the years? 

Banks used to be the default lending choice in funding and borrowing by most businesses. But thanks to factors including access to technology, a shift in a business mindset and the need for immediate cash flow, alternative business funding companies are taking up a share of the funding sector. 

Many entrepreneurs have this question on their mind:

How do I know what kind of alternative business funding is right for my business? 

In this quick guide, we help you understand different alternative funding options so you can choose one that fits your business needs. 

The $5 trillion funding gap!  

When a borrower obtains a loan from a lender that is not a bank, it’s considered a form of alternative funding. 

Non-bank or non-traditional lenders offer many different types of loans that give borrowers access to capital when they need it the most. Often, small businesses and medium-sized companies apply for funding through alternative lenders when they are short on cash and need to inject capital into their business immediately. 

A recent study by Oracle shows that alternative forms of funding are only expected to increase in popularity, as 40% of consumers feel that non-banks can offer more than a traditional bank. Small to medium businesses, in particular, are encountering a funding gap — $5 trillion to be exact — that is driving them to explore alternative borrowing options.

Another survey discovered that banks have an approval rate of approximately 58% from small business applications. In contrast, alternative lenders have a 71% approval rate for small businesses, which is making substitute funding options so viable and popular. 

Popular alternative business funding options in 2021

alternative business lenders

Alternative loans come in many different forms, so you can usually find one suitable for your current needs. Here are three popular alternative funding options to add to your toolkit: 

Asset-based lending (ABL)

ABL works by utilizing the assets your business already has, such as accounts receivable, inventory, machinery or equipment as collateral for a loan.

In terms of benefits, ABL loans can have lower interest rates and less stringent borrowing conditions as compared to other funding options. 

Read more here

Invoice factoring

Invoice factoring is when a business sells its outstanding accounts receivable to a third party at a slight discount. 

A major advantage of invoice factoring is that businesses are not adding any more debt to their books. They’re simply getting access to their own cash flow before the invoice due date. 

Read more here 

Peer-to-peer lending (P2P)

P2P is another alt lending solution that’s becoming more mainstream. Under this form of funding a borrower, an investor, and a partner bank are brought together through an online platform.

The main benefit of P2P is that borrowers enjoy a relatively lower interest rate. Because P2P platforms don’t actually give out a loan and act as a middleman, they are able to keep costs low. 

Nevertheless, P2P lending does come with its own set of challenges. The main downside is there are no laws protecting borrowers or lenders. The platforms are generally not guided by any regulatory bodies, so there are a lot of inconsistent behaviors that may pose problems. 

However, when you have a trusted go-to lending partner and have developed a long-term relationship with them, you’ll be able to openly discuss all funding options available — regardless whether they offer those options or not. This is our approach at Liquid Capital, and we’ll give you expert advice on a variety of funding options to help grow your business. 

In light of uncertainty: Why alternative funding makes sense

Many small businesses have been locked out of government-assisted loan programs through their banks—and with temporary holds on new loans, businesses have no choice but to turn elsewhere for funding. As businesses struggle to come up with ways to fund their operations, alternative lenders seem like the obvious choice for many. 

To put the need into context, Statistica predicts that 1,778 thousand small and medium businesses will receive loans this year from alternative lenders—amounting to $30,413M, which will set off an upward growth trend of 10.2% YoY. 

Yet, perhaps many companies are also shifting towards non-traditional funding because they need to build partnerships with new lenders. Business owners recognize they aren’t experts in everything and no longer want to go at it alone. Instead, they are leveraging help from professionals who have the right experience, knowledge and resources to get things done.

 

Related: Baby’s on Broadway — How partnering with the right lender helped this retail store grow into a community cornerstone

 

Ultimately, you have to choose a funding option that fits your business needs and timing. Alternative lenders offer the flexibility of repayment and a creative solution to unique business challenges. They may also offer faster access to capital, so if you’re short on time you may want to speak with a non-traditional lender. Whatever your decision may be, choose an alternative lending option that makes sense for your unique business challenge.

 


When working with Liquid Capital, clients not only receive funding but also gain access to a strategic business partner who works alongside them to make sure their business is thriving. Liquid Capital Principals work closely with clients and help them address concerns regarding business operations outside of funding.

If you’re interested in learning more about us or connect with a Principal near you to chat about your business funding needs, click here

Images by Adobe Stock and Pixabay: Featured and Secondary

January 2021 - Recent Fundings

Recent Fundings – January 2021

January 2021 - Recent Fundings

invoice factoring faq

You asked, we delivered: 11 invoice factoring FAQs answered (with resources)

Want more information on this funding option? We answer the most common invoice factoring FAQs below.

invoice factoring faq

Have you considered using invoice factoring to increase capital for your business but you’re not quite sure how it works? 

Below, we’ve answered the invoice factoring FAQs about this popular funding option, so you can assess if factoring is right for your business. Many of these questions are actually directed towards the factoring company itself, as it’s an important part of assessing your partnership. When learning about invoice factoring, your partner should be able to answer all of these questions to your satisfaction.

Invoice factoring FAQs: Top 11 questions that businesses ask invoice factoring providers:

 

Q1) What is invoice factoring? (If you already know, skip to Q2!)

Invoice factoring essentially means selling your open invoices to a factoring company, called a «factor.» It allows businesses to generate immediate cash flow and access capital that would otherwise be held up by slow-paying customers.

In B2B, it’s common to offer 30, 60 and 90-day payment terms, however, this means you have to wait for payment. Instead, companies sell the invoices to a factoring partner at a slight discount, and can immediately inject that capital into their business. You get paid most of the invoice upfront, while your factoring partner holds back a “reserve” as they wait to collect the full payment from the end client. Meanwhile, you can move forward with your business.

One main advantage of selling invoices to a factoring company such as Liquid Capital is that you’re not adding any further debt to your books. You’re simply leveraging your assets to inject money into your business.

Q2) How long have you been in business?

Before placing your trust in any factoring company or lender, it’s important to know if the company has substantial experience working with businesses like yours. It’s also critical to work with a factoring company that understands your industry and has credibility with its clients.

Here at Liquid Capital, we’ve been in business since 1999 and we’ve deployed over $3 Billion in working capital across North America. We have more offices across North America than any other trade finance company, and we’re always happy to work with our clients to give them a clear picture of their business funding options.

 

Read our Liquid Capital success stories to see how we help businesses. 

 

Q3) What are your terms and cancellation policies?

A reputable factoring company will never lock you in a lengthy contract. When selecting a lender, ensure they offer you flexible terms and conditions and that there are no auto-renewals in place. They should also offer a 30-day cancellation policy, so if you are no longer in need of funding, you are free to end your contract with them.  

The best agreements are those that are structured like those at a bank. Look for factoring companies that offer agreements without clauses that lock you in.

Learn more on how invoice factoring works here.

Q4) How much are the charges?

Understanding the fee structure is crucial, especially because many factoring providers entice customers with lower upfront costs. You need to be on the lookout for hidden fees and add-ons that can really rack up your borrowing costs. It becomes especially important to take the time and review everything before you sign on the dotted line.

Here’s a quick read on what kind of fees you should be on the lookout for. We’ll discuss all the details with you so you know the fees and have confidence that this solution will work for your business.

 

invoice factoring faqs


Q5) How are the reserves calculated?

A “reserve” is a percentage of the invoice the factor keeps until the end customer pays the invoice. Discuss these reserves, fees and associated timelines with your lending partner.

For example, let’s say you are selling a $10,000 invoice, and the factoring company holds a reserve of $1,000. Once the end customer pays the invoice in full, the factoring company will forward you the reserve fund of $1,000 minus their fees. 

Q6) Do you outsource your operations?

Some factoring companies outsource payment collections to third-party vendors. These arbitrators may not give customer service the same level of attention and importance as you would when dealing with your clients. 

Because these vendors are more concerned about getting paid, they may be less dedicated to the customer experience during payment recovery. 

Q7) When will a security be registered against my business?

A security is a form of asset that a lender uses to secure a loan. For businesses wanting to gain funding through invoice factoring, the most common form of security is accounts receivables or invoices. 

When you fill out an initial application form with an invoice company, they may register a security against your business. Some may do this even if you don’t do business with them, which should be avoided if possible. . 

It is important to understand that if you submit multiple applications to different factoring providers, there could be security registrations filed on your business that you are not aware of. This could potentially create a negative situation where other lenders may not be able to get the proper interest against your assets and may shy away from providing funding that you need.

Q8) Is there a ‘consent judgment’ in the legal documents?

This question is applicable only to companies in the United States. Some lenders that have predatory practices ask for a consent judgment in their legal documents. Upon signing, you’re giving consent that in case of disputes, future judgments be ruled in favor of the factor. 

Q9) What jurisdiction is your choice of law?

If you happen to get into a dispute with a lending partner, choice of law dictates what jurisdiction your case will be defended in. 

You might want to work with a company that has a choice of law closer to where your business is located, so you both have a fair chance in any dispute. You don’t want to travel all the way to Panama to defend yourself, if the other party chooses that jurisdiction. 

Q10) Is there a charge for reporting?

Working with a factoring partner should be a relatively stress-free process. Part of this is being able to see reports on your accounts receivable, collections, credit limits, reserves and any timelines.

This information should be fully transparent and accessible so you’re always in the loop, and so you can hold your factoring partner accountable.

Q11) How are you funded?

The last thing you need to ensure is that the factoring company has adequate funding available so they can offer you capital when you need it. 

Have a conversation with the factor about their experience deploying large amounts of working capital, and ask for reviews from existing clients. 

 

Learn more about Liquid Capital.

 


At Liquid Capital, we understand what it takes for small, medium and emerging mid-market businesses to succeed – because we’re business people ourselves. Our company is built on a network of locally owned and operated Principal Offices, so whenever you’re talking to Liquid Capital, you’re talking directly to your funding source and a fellow business person.

Images by Pixabay: Featured and Secondary