Alternative Financing Vs. Venture Capital: Which Option Is Best for Boosting Working Capital?

There are several potential financing options available to cash-strapped businesses that need a healthy dose of working capital. A bank loan or line of credit is often the first option that owners think of – and for businesses that qualify, this may be the best option.

In today’s uncertain business, economic and regulatory environment, qualifying for a bank loan can be difficult – especially for start-up companies and those that have experienced any type of financial difficulty. Sometimes, owners of businesses that don’t qualify for a bank loan decide that seeking venture capital or bringing on equity investors are other viable options.

But are they really? While there are some potential benefits to bringing venture capital and so-called “angel” investors into your business, there are drawbacks as well. Unfortunately, owners sometimes don’t think about these drawbacks until the ink has dried on a contract with a venture capitalist or angel investor – and it’s too late to back out of the deal.

Different Types of Financing

One problem with bringing in equity investors to help provide a working capital boost is that working capital and equity are really two different types of financing.

Working capital – or the money that is used to pay business expenses incurred during the time lag until cash from sales (or accounts receivable) is collected – is short-term in nature, so it should be financed via a short-term financing tool. Equity, however, should generally be used to finance rapid growth, business expansion, acquisitions or the purchase of long-term assets, which are defined as assets that are repaid over more than one 12-month business cycle.

But the biggest drawback to bringing equity investors into your business is a potential loss of control. When you sell equity (or shares) in your business to venture capitalists or angels, you are giving up a percentage of ownership in your business, and you may be doing so at an inopportune time. With this dilution of ownership most often comes a loss of control over some or all of the most important business decisions that must be made.

Sometimes, owners are enticed to sell equity by the fact that there is little (if any) out-of-pocket expense. Unlike debt financing, you don’t usually pay interest with equity financing. The equity investor gains its return via the ownership stake gained in your business. But the long-term “cost” of selling equity is always much higher than the short-term cost of debt, in terms of both actual cash cost as well as soft costs like the loss of control and stewardship of your company and the potential future value of the ownership shares that are sold.

Alternative Financing Solutions

But what if your business needs working capital and you don’t qualify for a bank loan or line of credit? Alternative financing solutions are often appropriate for injecting working capital into businesses in this situation. Three of the most common types of alternative financing used by such businesses are:

1. Full-Service Factoring – Businesses sell outstanding accounts receivable on an ongoing basis to a commercial finance (or factoring) company at a discount. The factoring company then manages the receivable until it is paid. Factoring is a well-established and accepted method of temporary alternative finance that is especially well-suited for rapidly growing companies and those with customer concentrations.

2. Accounts Receivable (A/R) Financing – A/R financing is an ideal solution for companies that are not yet bankable but have a stable financial condition and a more diverse customer base. Here, the business provides details on all accounts receivable and pledges those assets as collateral. The proceeds of those receivables are sent to a lockbox while the finance company calculates a borrowing base to determine the amount the company can borrow. When the borrower needs money, it makes an advance request and the finance company advances money using a percentage of the accounts receivable.

3. Asset-Based Lending (ABL) – This is a credit facility secured by all of a company’s assets, which may include A/R, equipment and inventory. Unlike with factoring, the business continues to manage and collect its own receivables and submits collateral reports on an ongoing basis to the finance company, which will review and periodically audit the reports.

In addition to providing working capital and enabling owners to maintain business control, alternative financing may provide other benefits as well:

It’s easy to determine the exact cost of financing and obtain an increase.
Professional collateral management can be included depending on the facility type and the lender.
Real-time, online interactive reporting is often available.
It may provide the business with access to more capital.
It’s flexible – financing ebbs and flows with the business’ needs.
It’s important to note that there are some circumstances in which equity is a viable and attractive financing solution. This is especially true in cases of business expansion and acquisition and new product launches – these are capital needs that are not generally well suited to debt financing. However, equity is not usually the appropriate financing solution to solve a working capital problem or help plug a cash-flow gap.

A Precious Commodity

Remember that business equity is a precious commodity that should only be considered under the right circumstances and at the right time. When equity financing is sought, ideally this should be done at a time when the company has good growth prospects and a significant cash need for this growth. Ideally, majority ownership (and thus, absolute control) should remain with the company founder(s).

Alternative financing solutions like factoring, A/R financing and ABL can provide the working capital boost many cash-strapped businesses that don’t qualify for bank financing need – without diluting ownership and possibly giving up business control at an inopportune time for the owner. If and when these companies become bankable later, it’s often an easy transition to a traditional bank line of credit. Your banker may be able to refer you to a commercial finance company that can offer the right type of alternative financing solution for your particular situation.

Taking the time to understand all the different financing options available to your business, and the pros and cons of each, is the best way to make sure you choose the best option for your business. The use of alternative financing can help your company grow without diluting your ownership. After all, it’s your business – shouldn’t you keep as much of it as possible?

US Markets in green on Friday; Dow 30 up over 345 points, Nasdaq Composite, S&P 500 up nearly 1%

US Markets were trading in the green on Friday with Dow 30 trading at 30,678.80, up by 1.14%. While S&P 500 was trading at 3,701.66, up by 0.98% and Nasdaq Composite 10,690.60 was also up by 0.71 per cent

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US Markets in green on Friday; Dow 30 up over 345 points, Nasdaq Composite, S&P 500 up nearly 1%
Earlier today, Indian stock markets ended the week on a winning note. It was the sixth straight gains for equity markets. Source: Reuters
US Markets were trading in the green on Friday with Dow 30 trading at 30,678.80, up by 345.25 points or1.14 per cent. While S&P 500 was trading at 3,701.66, up by 35.88 points or 0.98 per cent and Nasdaq Composite 10,690.60 was also up 75.75 points or 0.71 per cent. A Reuters report said that today’s strength was on the back of a report which said the Federal Reserve will likely debate on signaling plans for a smaller interest rate hike in December, reversing declines set off by social media firms after Snap Inc’s ad warning.

Source: Comex

Nasdaq Top Gainers and Losers

Source: Nasdaq

Earlier today, Indian stock markets ended the week on a winning note. It was the sixth straight gains for equity markets. The BSE Sensex ended at 59,307.15, up by 104.25 points or 0.18 per cent from the Thursday closing level. Meanwhile, the Nifty50 index closed at 17,590.00, higher by 26.05 points or 0.15 per cent. In the 30-share Sensex, 13 stocks gained while the remaining 17 ended on the losing side. In the 50-stock Nifty50, 21 stocks advanced while 29 declined.

Important Tips on How to Get A Flawless Look Using Organic Natural Skin Care

Healthy clear beautiful skin is not achieved just by putting skin care products on your skin. You could use the best organic products and still struggle with issues with your skin. It is important to use organic products as opposed to skin care with synthetic chemical ingredients. Too often the reason you might be experiencing skin problems like blemishes, dry skin, wrinkles, irritation, infection and other issues can be traced to the skin care you are using. There are reactions to chemical ingredients that are not often recognized as the source. Using organic natural products will not harm your skin or your health.Creating flawless looking skin is best achieved naturally. When you have naturally beautiful skin you achieve better overall health as well. Naturally flawless skin is also dependent on how healthy you are internally. The symptoms from nutritional imbalance can show up as skin problems. Stress and emotional problems also can effect your skin. For naturally flawless looking skin you have to be conscious about your diet. Eating a healthy balanced diet is key to beautiful skin and is as much of a factor as what you put on your skin. Avoiding foods with synthetic ingredients, chemicals, preservatives and other potentially toxic ingredients is important for the condition of your skin. Highly processed, refined foods don’t offer much good nutrition and often also cause skin problems because of the sugars, salts and bad fats they contain. Eating lots of fresh organic fruits, vegetables and whole grains will give you balance and support your efforts to care for your skin.Natural Organic Antioxidants Are a Must for Flawless SkinThe bottom line for your general health and the look and health of your skin is dependent on a consistent flow of antioxidant rich foods and skin care products. Free radicals are constantly attacking your skin cells, the way to fight back and keep these free radicals under control and minimize their negative consequences is with lots of antioxidants. Using organic skin care products that are high in antioxidants can help to keep not only skin cancer away, but also to avoid many common skin diseases, like rosacia, dermatitis, hives, infections, psoriasis, eczema etc. Antioxidants are one of our best aids in combating the negative effects of environmental toxicity. You are surrounded by toxins in the air, water and in the materials you are exposed to. The entry point into your body in through your skin. If you are adequately loaded up with antioxidants in both your skin and internally you can combat the effects of environmental toxins.Choosing the Right Skin Care ProductsOrganicThere are a vast amount of products called natural skin care. It is important to beware of the term “natural”. This term is used very loosely, it no longer means products labeled natural don’t have preservatives, synthetic or chemical ingredients.Organic is a much stronger term for knowing that a product is pure and free of toxic ingredients. When choosing organic skin care, it is still important to read the label and see what the ingredients are. There are some organic products that contain ingredients that although they are organic and from a source in nature they are not ultimately great for your skin. Do your home work. Also not all organic products are antioxidant rich. Botanical skin care ingredients from plants, fruits, nuts and other sources know for high antioxidant content are what you want to look for. For instance there are many plants and fruits that grow in the rainforest that are being used in organic skin care products because they are so high in antioxidants.The Camu berry from the Peruvian Amazon Rainforest is an example, Acai berry, grapefruit, and countless other high antioxidant fruits are used in organic natural skin care. Look around do some research and educate yourself, then try some products, experiment. A good organic skin care product should offer a satisfaction guarantee so you can try the products risk free. Look for products online and through direct sales from someone you can connect with personally and get on going support.Naturally flawless healthy skin is possible for you.