August 14th is National Financial Awareness Day. This a timely reminder to take charge of your financial well-being and make informed financial decisions for your business. If your company is having cash flow challenges or growing rapidly and in need of working capital, this is the prime time to take advantage of accounts receivable financing. In celebration of this day, we will share the importance of financial awareness day and explore commercial funding solutions such as accounts receivables, versus business term loans in our latest blog.
Importance of Financial Awareness Day
National Financial Awareness Day is observed yearly on August 14th. This day acts as a checkpoint, prompting individuals and businesses to take steps toward understanding how they can improve their financial state. There is not a ‘one size fits all’ approach to financing so knowing the various factors to consider as you are researching your lending options is crucial.
Researching Financing Options
The key to determining the best option for your business, is to look at the various options, determine the specific needs for your business and business cycles, evaluate which best fits your needs, and find a reputable partner that can provide the best source of cash for your company.
What is Accounts Receivable Financing?
Accounts receivable (AR) financing takes place when a company borrows against their outstanding invoices (their accounts receivables). This can occur by selling the invoices, known as factoring, or by using the receivables as collateral against a loan, otherwise known as an asset-based loan. In both cases, the AR financing company advances you a portion of the receivables, in the form of cash, even before your customer has paid their invoice.
When Does Accounts Receivable Financing Work Best
- Companies with cash-flow gaps: Industries that usually have weekly or bi-weekly payroll cycles and customers that may pay beyond 30 or 60 days, can have more pressure on cash flow.
- B2B Companies: Many B2B industries are a good fit including transportation, staffing agencies, manufacturing, distribution, some construction companies, and other B2B services.
- Rapidly growing companies: With rapid growth, there is also a need for increased cash investments.
What is a Business Term Loan?
A business term loan provides businesses with a sum of cash upfront in exchange for specific lending and repayment terms from the lender, often a bank . Rates for these loans vary, but to get the best interest rates, you may need to meet minimum annual gross sales dollars and a couple of years in business. Options for these loans include: an unsecured line of credit with no collateral, a line of credit with a security deposit, an unsecured term loan with no collateral. While terms of these loans can provide a lower rate, they can be harder to qualify for than other types of financing. Business owners may also need to sign a personal guarantee, and the business may need to put up collateral
When Does a Business Term Loan Work Best
- Established businesses with proven financial track records: This type of loan can work best for companies that have long-standing good financial records. If you have poor credit or limited business experience, qualifying for a term loan may be difficult.
Business term loans tend to work best for companies with strong financial track records. Start-ups and businesses with fluctuating cash flow often have trouble getting approved for these types of loans. This is why for National Financial Awareness Day; we encourage you to consider alternative financing options that may be a better fit for your business.
Commercial Funding offers AR financing options, including:
Invoice Factoring and Asset Based Loans (ABL) provide companies with ongoing capital that grows as your company grows.
These are only a few of the wide variety of commercial funding options. Financing your business doesn’t have to be daunting or overwhelming. If you have a need for working capital, especially due to slow-paying customers, Commercial Funding can help you overcome those obstacles.
Additional Resources for Financial Awareness Day: