All businesses can use extra working capital, no matter their size. However, there has been a huge shift in how business owners get that capital. Traditionally, if a business needed funding for any reason, they would apply for a bank loan. Since the economic crash of 2008 over a decade ago, banks have adopted more conservative lending practices, making it very difficult for business owners to get the working capital they need through tried an true methods. In fact, as of last year, fewer than 20% of all business loan applications are ever approved by banks. Fortunately, the world of commercial financing has stepped up to offer financing solutions so that business owners can get the working capital they need, without taking on debt.
Merchant Cash Advances
Merchant Cash Advances – or MCAs – are a great solution for businesses that need working capital, but do not want to register debt on the balance sheet. MCAs are considered a sale on future receivables, and the advance itself is repaid as a percentage of from every transaction where the customer pays with a credit card. This gives businesses a lot of room for light sales periods when repaying the MCA. Because of this, MCAs offer more flexibility than traditional bank loans, which require monthly installments regardless of sales. MCAs can be used by businesses in almost every industry, provided they accept credit card payments from sales.
Equity financing is a method used by startups, established businesses, and commercial real estate investors alike. If a business needs working capital, it will often sell equity shares to angel investors and venture capitalists in exchange for money to be used for acquisitions, internal projects, rolling out new products, or growth. Equity financing is considered a sale based on the future or potential profitability of a business, and there is no obligation to repay investors. However, working equity typically involves giving investor some say in the decision making and direction the business takes. Usually, these investors have experience with owning businesses, and will help steer the company in the direction that makes the most profit in the long run.
Accounts Receivable Financing
Another great solution to getting working capital is by using accounts receivable financing (AR financing). In this scenario, a business will sell its unpaid customer invoices to an AR financing company in exchange for cash. This eliminates the aging window on customer invoices and funding can be accessed within 24 hours of submitting invoices. The only cost to the business is a small processing fee when the invoices are submitted, and AR financing – much like MCAs – is considered a sale on receivables, and therefore carries no debt with it.
Commercial financing offers working capital solutions – free of debt – to business owners that conventional bank loans cannot. If your business needs extra working capital, explore your options. It’s better to take on a manageable financing solution without digging yourself into a hole with a traditional bank loan.