Securing capital remains a difficult feat for most entrepreneurs. And with banks keeping the purse strings tight, it’s more important than ever to identify out-of-the-way sources for funding. Below are three options to consider:
Accounts Receivable Financing This financing tool, also called factoring, works with small businesses getting invoices paid in just a few days (versus the typical 30–60 days) and using the capital for operations and accounts payable and to fund growth. Invoices are sold to a factoring firm at a discount (typically 1%–6% less than the invoice total), and the small business gets immediate use of its funds while the factoring company waits to get paid. Dan Drechsel, CEO of Atlanta-based FTRANS, a provider of accounts receivable outsourcing and credit management solutions, says factoring can be especially useful for service businesses that have few, if any, “physical” assets (such as equipment) to use for leverage. For more information on accounts receivable financing, see “Good to Get” (March 2009). Also, visit the Commercial Finance Association’s Website (www.cfa.com) and the Resource Nation’s Website (www.resourcenation.com/business/factoring).
Vendor Financing Defined as the lending of money by a company to one of its customers so the customer can buy products from it, vendor financing allows the company to increase its sales even though it is basically buying its own products. Although it isn’t suited for everyone, Michael Johnson, director of the Chicago Urban League’s nextONE business acceleration program, says “The vendor can supply the product with a small deposit and a payment plan that makes sense for the business owner.” The nonprofit organization SCORE, which offers entrepreneurs resources, advice, and mentorship, offers five tips regarding vendor financing. Visit www.score.org/5_tips_fc_11.html.
Business Incubators MarKel Snyder found a solution for his firm’s financial needs at TechColumbus (www.techcolumbus.org), a Columbus, Ohio-based nonprofit organization focused on technology-based economic development in counties throughout central Ohio. The organization provides professional development, business assistance, and financing for technology firms of all sizes. As founder and CEO of Columbus-based software developer GotGame Media L.L.C., Snyder was awarded a $50,000 grant for his newly launched company from TechColumbus’ TechStart program earlier this year. “We had a new concept with no initial revenue attached to it, so we needed a funding source that understood that,” he says. To identify business incubators in your area, visit the National Business Incubation Association online at www.nbia.org. Also, the Small Business Administration’s Small Business Development Centers also offer support for businesses in need of financing and incubator assistance (www.sba.gov/aboutsba/sbaprograms/sbdc/index.html).
This article originally appeared in the November 2009 issue of Black Enterprise magazine.