Quick and flexible funding is of paramount importance in running your business. Whether this is accomplished though a large cash reserve or via outside financing is unimportant. The key is having access to funds to seize opportunity when it arises.
Most small and medium sized business don’t have large amounts of spare cash on hand. It’s rare to not have enough opportunities to make additional investments in your business when you have extra cash. Thus, it makes sense to have some form of financing in place that you can access quickly.
Fast business loans give you cash when you need it. It provides all the benefits of a cash reserve, without the opportunity cost of stockpiling excess cash. These types of loans can be tricky. There are unscrupulous lenders out there that will take advantage of your need for quick funding. You need to be careful with the type of loan you actually get.
Just Because You Could Doesn’t Mean You Should
Just because you find a lender that offers fast business loans, it most certainly doesn’t mean you should pursue it. Seeking funding out of desperation is a good way to lock yourself into a bad loan agreement.
There are lenders out there, both commercial finance companies and “loan shacks”, which will give you a loan quickly, but at an exorbitant cost. These are the payday lenders of the business world.
Fast, But Expensive and Risky
Just like a personal payday lender, there are lenders out there that will loan your business thousands with little more than a signature from you. Why go through all the trouble of a traditional loan application and deal with underwriting when you can simply sign on the line and get a wire this afternoon? It’s for exactly the same reasons that you should never get a payday loan.
That simple agreement that you signed just gave them the right to charge you an excessive interest rate. If you miss a payment or violate any provision of the agreement, don’t be surprised when they start piling on the fees. Furthermore, if the loan is secured, they likely have the rights to walk in the next day and take the keys to your business. Signing a loan document without truly understanding the terms is incredibly unwise and dangerous.
All this being said, not all fast business loans are bad. There are many reputable lenders that offer great financial products that provide fast funding for your business.
Some of the best loans for fast, flexible funding are those that revolve around your accounts receivable. These are financing products designed to increase cash flow. Most are in the form of a revolving line of credit, the amount of which is tied to the dollar amount of your outstanding invoices.
For small and mid-size businesses, factoring is generally the most appropriate form of this type of financing.
Benefits of Factoring
Factoring provides funding just like any other loan; however, the way that you receive that financing sets it apart from many other types of products. In factoring, you chose which invoices you want to receive funding on. If you have a special project you need financing for, you can choose to just submit invoices for that project. If you want to receive funding on every invoice, you can do that as well.
This gives you direct control over the funding you receive, which also means you have direct control over the cost of the financing. You don’t pay for funds you don’t need. You also don’t have to worry about monthly fees that are often associated with other types of financing. This makes it easy to know exactly how much it will cost to get funding that item.
Factoring has been around for decades, but isn’t well known since it has traditionally been used in a select number of industries; however, in recent years, businesses in practically every industry have used factoring. Many have found other fast business loans can’t compare to the simplicity and flexibility it offers.