When you were a child you could have had a hobby or a special collection that was your pride and joy. Perhaps it was a baseball card collection, and every Saturday on the day of addition you found yourself at the local sports store sipping the Mickey Mantle rookie card. You dreamed of that card, but the price tag did not fit properly with your financial portfolio that included $ 5 to cut the lawn once a week. At the moment you realize that the card could have done more than completed your valuable collection, you could have used it as collateral for a loan. Well, not really, but you get the point that the security of your loan can come in many forms, but its up to you to investigate your assets to get the funding you want.
Trade receivables Financing One of the most common methods of financing is called customer debt financing. This means a secured loan in which accounts receivable are used as collateral in exchange for a cash sum that will be paid within a short period of time. Typically, this kind of funding is used to help companies with a shortterm cash issue. The lender regards the age of the accounts, which means that the older is the account, the less is the value. For accounts less than thirty days old, a lender will allocate approximately 75 percent of the estimated or nominal value. The lender will also consider credit and past payment history when deciding on a loan to value relationship. When the business collects the claim, the profit is used to repay the loan or the credit. There is also a monthly interest rate calculated by applying a daily rate to receivables remaining each day the less outstanding claims, the lower the interest rate.
Investment financing Investment financing is another popular option which means that the companys current inventory is used as collateral in exchange for a secured loan. The average lender assigns a percentage of 60 to 80 percent of the value of your inventory. If you are a manufacturer with more raw materials, component parts and unfinished products, it is likely that you can only get up to 30 percent. The lender wants collateral that can quickly and easily secure funds if you have default on the loan. This type of loan is more ideal for shortterm loans and offers interest rates similar to those found in accounts receivable.
Factoring Financing Factoring is the third category of most popular forms of assetbased financing. This is the sale of accounts receivable or the sale of your future payment invoices for financing now. The factoring company buys the offered invoices and takes control of collecting the payments at the due date. You get an infusion of money immediately and do not have to worry about a future account wrong with the payment. The factoring company will use its own resources to receive payment, including debt collection fees for customers.
It is not a particularly common method that is used in the long term, but may be more suitable for growing companies with shortterm or temporary cash flow issues. Another brand in the positive column is the fact that there is no debt involved in factoring funding. You sell these invoices and therefore conduct a transaction that is final.
On the other hand, the factoring company will discount the amount you will receive from this sale. Traditional loans will usually be cheaper than the cost of factoring. The cash rate for accounts receivable is usually 70 percent to 90 percent of the nominal value, depending on the customer credit history and the nature of your business. Another problem with using factoring is the potential damage to customer relationships. The collection measures taken by the invoice company may jeopardize an ongoing business relationship with one of your customers. A fact company has little interest in maintaining your future relationship with the debtor and some companies may be exaggerated to collect claims.
You can find the plan that is most suitable for your business, but take the inventory of these assets first and foremost. Know what you have, appreciate it and find that Mickey Mantle corresponds to what will be the last paragraph to this part of your funding puzzle. In addition, it is crucial to determine which method of obtaining the best economy for you and your business. Doing research and reading this article is a particularly smart step to take. It shows that you take a proactive role in your business.