factoring, small business financing, invoices to cash

New Business Financing Option I Just Discovered

As a business person, I am always interested in new financial products that help me finance my various businesses. I just found out about this new way to get small business financing without the hassle and waiting time of SBA loans, nor the shady and high-interest rates of some alternative lenders, namely sketchy factoring.

Every day my manager would check the mailbox and hope for a check to pay the bills, often disappointed.  Instead, we applied and got an account at Fundbox, which got good reviews.  Now directly from within a mobile phone app we can finance any invoice in our online accounting system Quickbooks and get the money into our checking account the next business day.  Now our bills get paid on time, avoiding late fees and no longer do we have to pressure our customers to pay – avoiding those uncomfortable collection phone calls I hated to make!

I had heard of old-fashioned “factoring” as a finance option. This is where lenders, some a bit shady, would “buy” your open invoices and then they would proceed to collect from your customers. There were a few things that went wrong here.

Investopedia defines a factor as a financial intermediary that purchases receivables from a company. Thus a factor is essentially a funding source that agrees to pay the company the value of the invoice less a discount for commission and fees. The factor advances most of the invoiced amount to the company immediately and the balance upon receipt of funds from the invoiced party.

 

First, they tacked on all sorts of fees and interest charges which made this type of short-term capital very expensive. Secondly, there was the often customer relationship destroyer of aggressive collections by the factor.  Thirdly was the invasion of privacy revealing your company financing to your competitors who could use it to discredit you in your industry. As such I dismissed this financing option right away.

Now smart lenders have reimagined this type of financing in a new and better model.

Instead of the factoring system, modern lenders use invoice financing to lend businesses money at reasonable rates, in a line of credit type of revolving fund.

I liked how they removed the connection between the factor and my customer. Invoice financing, in most companies, do not contact your customer ever and your banking needs are kept private away from your competitors and industry gossip mill.

Wrongly I had assumed that this type of financing would be only open to manufacturers who sold to large companies (Walmart and Target, etc). Happily, I was wrong. Even small companies such as my web design agency with unpaid invoices from other small businesses are now eligible.

For example, last month my internet marketing and web design agency had over $50,000 in outstanding invoices that we “financed” and got cash advance. This type of small business financing is especially advantageous for new companies who have little or poor business credit because the lender does not use the owner personal credit ad the sole determining factor for approval. Usually, your customer’s credit, whom you are invoicing, is a greater factor in financing approval than your credit history – business or personal.

 

Each lender has slightly different rules and regulations regarding their invoice financing, sometimes called account receivables financing.

 

 

 

best loans for restaurants, bars, pubs, coffee houses

I Invested in a Restaurant Loan – Here’s Why

Are you like me, always dreamed of being a part owner in a chic restaurant? I love cooking at home and consider myself a good chef (my wife says so!).  My good friend is very successful by owning a chain of steakhouses in our area.  Every time I go for dinner, it is such fun and it looks like his work is so enjoyable I have been envious for years.

2018 marks the year that I decided to follow my dream after I returned from my Costa Rica trip and invested in the risky, yet lucrative restaurant industry.  After carefully reviewing the possible return on investment, coupled with the cool factor of getting a great table any night I took the plunge -investing $50,000 in my buddies steakhouse.

Restaurants of all types, from coffee shops to high-end French restaurants take a lot of work and long hours.  Some of the work is glamorous and fun but plenty of it is not such as handling drunks, negotiating food prices and getting and retaining top talents in chefs and managers.

In our financial meeting, my friend told me that the best restaurant loans for the working capital that he could find had APR – annual percentage interest rates of upwards of 80% in some cases.  This is traditionally because of the high risk of business closures and reinvestment needs.  Additionally, there is the danger that cash businesses face for theft and loss.

best loans financing for restaurants short termIt is precisely because so many lenders shy away from restaurant loans that smart investors can make a killing.  Perhaps you have read about the highly profitable firm Kabbage which makes loans to restaurants and other small businesses such as beauty salons, retailers, and online e-commerce sites.

Founded in 2009,  headquartered in Atlanta, Georgia Kabbage loans have been named in the top percental of America’s fastest growing companies according to Inc magazine.  Over the past three years, they have an awesome 979% growth rate. This is WHY I choose to make this restaurant loan to get a piece of this high growth and high-profit investment opportunity for myself.

The key to success in restaurant loans is to only invest with partners that you know, trust and have solid proven business skills running profitable companies over time.

Don’t be fooled by thinking great chefs are also great business people – very rarely is that the case.

To protect myself, and my investment I required constant accountability and detailed shareholder agreements which spell out everyone’s responsibility clearly.  Also, we have weekly meetings (over a delicious steak and glass of red wine) to review all expenses and sales figures to spot and fix any issues right away before they grow into large unsurmountable problems.

People who lose money in restaurants often go into the industry to make lots of money fast, not work so hard and meet women. Good luck.