How Small Business Factoring Can Help Startups Grow

Written by moxysupport on May 5, 2015

Running a successful startup isn’t easy. Your cash flow suffers in the beginning. Many startups tend to skimp on owner salaries, the marketing budget, and anything that isn’t considered mission critical to their business. But once you have some accounts receivable on your books, small business factoring can significantly help your cash flow issues.

Small Business Factoring to Help Startups Grow

Let’s take a small manufacturing firm that is making a super-widget designed to protect smartphones from damage. They constructed their prototypes with a relatively inexpensive 3D printer, found startup revenue to mass produce their clever product through crowdfunding efforts, had their website and its content created by a Web-savvy and creative friend, and now they’re producing super-widgets by the barrel. They’re earning some revenue through direct Internet sales, but they know to scale the business, they must find brick-and-mortar retail distributors.

Through hard work, good marketing and a little bit of luck, they land several large accounts – novelty stores, smartphone case kiosks, and a well-known retailer, too. Each account places a large order on Net-60 terms. Now, the super-widget company must ramp up production, buy more plastic, and print more packaging, to manufacture products by the truckload. How will they fund this?

Options to Fund Your Fast-Growing Startup

A fast-growing startup has a few options to fund a rapid growth stage:

– Take out a small business loan, which is increasingly difficult without collateral of any sort.

– Fund it personally through a home equity loan or another line of credit. Many small business startups rely on this method, but it’s risky, placing your personal property in jeopardy if your business experiences stumbling blocks.

– Find angel investors or venture capital. – This choice works for some companies, but if your balance sheets aren’t desirable and you don’t know the right people, finding investment capital is about as likely as having a fairy godmother help you out. Also, the second you welcome investors into your company, you’re giving up a degree of control. If you started your own company because you didn’t want to have a boss, you don’t want investors looking over your shoulder, either.

– Use small business factoring for startups. – A small business factoring company provides startups with capital from accounts receivable well before those bills are paid. In the case of our fictional company, if a retailer paid for 100 widgets on Net-60 terms, the factoring company would pay the startup 85% of that money upfront. In 60 days, when the account comes due, the retailer pays the factoring company and the startup receives the balance of their money, minus any fees due to the factoring company. It’s that easy.

Can Small Business Factoring Help Your Startup Stay Afloat?

Most small business owners strive for growth. There’s nothing wrong with rapid growth, except the challenges that come with funding it. Small business factoring helps startups serve their clients and pay their bills during that painful growth period when cash flow is tight.

Startups can use the funds to pay for additional employees, manufacturing costs, a larger building, or any other expenses associated with greater demand for a product or service.

Growing a startup doesn’t have to cause pains when you rely on small business factoring for startups to cure your cash flow ills.

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