The Many Advantages of Accounts Receivable Financing

There are many accounts receivable financing advantages. Businesses the need capital will be hard pressed to find a much better or faster option. Such financing is not dependent upon a businesses’ credit or the length of time that they have been in business. As long as a company has clients with good credit and outstanding invoices, then accounts receivable financing is a viable commercial financing option. Below, we will go into a little more detail about only a few of the many advantages of generating capital in this manner.

Fast money

Accounts receivables financing is a really great way to get money fast. Most factors are able to provide payment for invoices in about 24 hours. This process may initially take more time. However, after a business has established a relationship with a factor, the process goes really quickly. Unless a company has an open line of credit, it is difficult to think of a faster way to raise commercial capital. Even in cases where a line of credit is utilized a company is forced to pay interest which can be extremely expensive. There are no such costs associated with receivables financing.

Easy money

Accounts receivables financing is easy money. When a business desires to get a bank loan, they must be willing to jump through hoops. They will need to have all of their financial documentation in order. For a small business, this might require an unpleasant trip to the accountant. They then must also be ready to answer any questions a bank has. If they are unable to satisfactorily do so, then they won’t qualify for the loan. Also, many banks won’t loan money to new businesses, these are often the companies that need it most.

Today, it is even more difficult then in the past to receive bank financing. Banks simply aren’t willing to part with their money right now. They are turning down loan applications from businesses with good credit and that have been in business for a long time. Commercial financing has become more difficult then ever to secure, though not in every sense. Accounts receivables financing is a pretty easy way to get money. As long as a business has outstanding invoices owned by clients with good credit, they may be able to qualify for monies.

A business credit score doesn’t matter

If a business has any chance of receiving a bank loan, they must have a good credit score. In this day and age, they just might need an excellent credit history with no blemishes. Fortunately, businesses that utilize accounts receivables financing don’t have to worry about this. A factoring company is more concerned about the credit history of the invoiced clients then the company that owns those invoices because that is who they will be collecting their money from.

Accounts receivables financing has many advantages over traditional capital financing options. Generating capital in this manner is fast, easy, doesn’t require that a company has been in business long, nor do they need to have good credit.

Commercial Finance – Hard Money

The Merriam – Webster Online Dictionary defines hard as:

1 a: not easily penetrated: not easily yielding to pressure b of cheese: not capable of being spread: very firm.

2 a: of liquor (1): having a harsh or acid taste (2): strongly alcoholic b: characterized by the presence of salts (as of calcium or magnesium) that prevents lathering with soap i.e.hard water.

3 a: of or relating to radiation of relatively high penetrating power: having high energy hard X rays b: having or producing relatively great photographic contrast i.e.a hard negative.

4 a: metallic as distinct from paper hard money b: of currency: convertible into gold: stable in value c: usable as currency i.e.paid in hard cash. d: of currency: readily acceptable in international trade e: being high and firm i.e. hard prices.

5 a: firmly and closely twisted i.e. hard yarns. b: having a smooth close napless finish i.e. a hard worsted.

6 a: physically fit i.e. in good hard condition. b: resistant to stress or disease c: free of weakness or defects.

7 a (1): firm definite i.e.reached a hard agreement. (2): not speculative or conjectural: factual hard evidence (3): important or informative rather than sensational or entertaining i.e. hard news. b: close searching i.e. gave a hard look. c: free from sentimentality or illusion: realistic i.e. good hard sense. d: lacking in responsiveness: obdurate unfeeling i.e. a hard heart.

8 a (1): difficult to bear or endure i.e.hard luck or hard times. (2): oppressive inequitable i.e.sales taxes are hard on the poor.

9 a: characterized by sharp or harsh outline, rigid execution, and stiff drawing b: sharply defined: stark i.e. hard shadows.

10 a (1): difficult to accomplish or resolve: troublesome i.e. hard problems.

As used in this article, hard money is intended to convey the idea that because of the current economic conditions, many financing needs will be more difficult to accomplish. They will require great exertion and effort to overcome the economic obstacles of the current economy. Compared to 2006 and 2007, periods of relatively easy money, to obtain financing today you will have to have firm, definite facts to support your financing needs. And the cost of money will be more difficult to bear. Hard money is harder to find, harder to obtain and harder to repay. Nevertheless, hard money may be an economic necessity as a means to an end to grow a business or complete a real estate transaction.

Why is 2008 a time of hard money? This is a difficult question to answer. If you ask 3 experts you probably will get three different answers. It may be the economic equivalent of The Perfect Storm- a True Story of Men against the Sea. The phrase “perfect storm” refers to the simultaneous occurrence of events which, taken individually, probably would be far less powerful than the result of their rare combination. These occurrences are rare by their very nature, so that even a slight change in any one event contributing to the perfect storm would lessen its overall impact. The stock market crash of 1929 and following depression exemplifies a perfect storm of economic consequence.

What are these events today? 1) The Mortgage Melt-down. Major financial institutions in the United States are incurring billions of dollars in losses due to the loss in valuation of their investments in mortgage securities. The consequence for borrowers is that these institutions are less inclined to take risks when loaning money for fear of additional losses. And their regulators are demanding that regulated lenders raise their credit standards for borrowers to qualify for a loan. 2) The devaluation of the American dollar versus other world currencies. The U.S. government is spending ginormous amounts of money in excess of what it collect in revenue due to the political compulsion to spend taxpayers’ money, the war in Iraq, Hurricane Katrina (and other natural disasters) and the war on terrorism. This makes our currency less valuable. It makes importing to the U.S. more expensive. The American people have less money to spend on goods and services, and their money buys less than it did a year ago because prices of necessities such as gasoline are higher. 3) The current tendency of Federal and State governments to reduce funding for social services, health services and education because of inadequate revenues; this hurts individuals and businesses who have less money to spend on products and services which creates additional drags on our economy. 4) The diminishing value of residential real estate all across the United States. This is related to the mortgage meltdown and the fact that many people incurred debts that they cannot repay. The real causes of these events are complicated and beyond the scope of this article. Suffice it to say that these are hard times and hard times create needs for hard money loans.

What exactly is hard money? Here are seven examples:

1) A commercial real estate loan where the borrower receives funds based on the value of the property, usually 50% or less, at an interest rate higher than a bank would charge. This is the most commonly understood type of hard money. In this financing, neither the income from the property or the borrower demonstrably supports the repayment of the loan.

2) A real estate loan to buy a residential property where the borrower cannot prove their income. This may be accomplished with financing from a seller, the only party willing to take the risk of non-payment.

3) A small junior lien on income producing commercial real estate where the first lien is very large. For example, a million dollar second lien behind a ten million dollar first lien. Most lenders simply do not want to consider a loan of this type because of the potential liability for repayment of the first lien. It is ten times the risk of the secondary loan.

4) Most loans to people with less than excellent credit. Many loans are based on credit scoring. If you do not have a credit score that is high enough for the lender’s requirement, you simply do not get their loan and you may or may not be able to find a hard money loan to accomplish your objective.

5) Accounts receivable financing to construction contractors, medical providers and sellers of agricultural products. Most factors do not offer to these sectors of the economy because of the risks and complexities that are involved.

6) Purchase order financing for items with gross margins less than twenty percent. The twenty percent margin is a benchmark for sufficient profitability in a transaction to pay all financing costs and create profits for the business after all costs are paid. During hard economic times margins are squeezed. It is a vicious cycle.

7) Loans to businesses that are particularly negatively affected by the current economy. For instance, a loan to build a new lumberyard is impacted by the downturn in new real estate construction and a lower need for lumber. Most banks would simply decline to consider such a loan. The same is true for developers seeking to build new housing tracts or office building developments. This is not a good time to try to start a new mortgage brokerage company; although it may be a good time to be a hard money lender provided that you are very, very careful in assessing your transactional risks.

What do all of these situations have in common? In times of easy money these situations would be less costly to finance and more likely to receive funding. Today, the lender’s answer to your request for funding is more likely to be a polite but strong “no way”. Many lenders have effectively (if not actually) shut their doors. Many lenders will simply decline to lend on hotels/motels, gas stations, owner/user properties, properties with any environmental issues. Borrowers who do not have FICO credit scores above 680, with substantial net worth and income will find it is very difficult to obtain many types of loans. Fortunately, the door for accounts receivable financing is still wide open.

The bottom line: Hard times in our economy will tend to force more individuals and businesses to borrow hard money- if they are able to get any money at all. Commercial financing with hard money will tend to grow as traditional sources of financing from banks and institutional lenders simply will not be available.

A Finance Loan to Fit Your Needs

When money runs short, you may find yourself wondering exactly how you’re going to get the cash that you need to do the things that you either need or want to do. One of the easier solutions to this problem is to apply for a finance loan… a structured loan that allows you to make payments on the item that you’re wanting to purchase or the amount that you need to pay.

Not every finance loan is created equal, however; it’s important that you take the time to look at all of your options and carefully choose which finance loan is the one that’s right for you. By considering all of the options that you have available and comparing the features and rates of different finance loan offers against each other, you should easily be able to find the loan that best fits your needs while staying within your budget.

How Financing Works

If you’re going to take out a finance loan, the first thing that you need to know is exactly how financing works. Basically, when you finance a purchase then you’re taking out a secured loan that covers the cost of whatever item you’re purchasing minus any down payment that you make, or the value of a trade-in for vehicle purchases where trade-ins are allowed.

There may also be some additional fees associated with your purchase, and these may or may not be covered by the amount of the finance loan it depends upon the nature of the loan, the amount and purpose of the fees, and the lender that you’re using for the finance loan.

About Collateral

When making a purchase with a finance loan, the item that you’re purchasing is generally used as collateral to secure the loan. This means that there is no additional collateral required… but it also means that whatever you’ve just purchased comes into your possession with a lien on it that grants legal rights to the lender.

Should you fail to repay the loan as promised, the lien holder can take possession of the item and place it up for sale in order to recover their lost money. This is only done as a last resort, however, and once the loan has been fully repaid then the lien is removed and you gain full ownership.

Looking at Your Options

Since most finance loans are used to cover larger purchases and you’ll likely be paying interest on the loan amount for several years, it’s important that you take a little bit of time beforehand to explore your various lender options so that you can find the lender that’s best for your financial needs.

You should consider a number of banks, finance companies, and other lenders in your area, as well as a variety of online lenders. Request loan quotes from all of these lenders, so that you’ll be able to stop and compare the different offers and determine which loan is really the best one for you.

Choosing the Right Loan for You

When comparing finance loan quotes, it’s important that you compare not only the interest rates that are offered with each but also the terms of the loan and any additional fees associated with borrowing the money or purchasing the specific item.

You’re looking for the best loan that you can get, and it can be very easy to be won over by a slightly lower interest rate only to find that the terms of the loan are much worse than some of your other options. Take the time to choose your lender carefully.


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