Cash flow financing is a great way to provide business funding. It fills the gap between the time you invoice and the time that you collect payment. This gap is what causes so many problems for business owners.
Cash flow financing allows you to buy materials for the next job, make payroll and pay your bills without worrying if your customer really put the check in the mail last Friday. It gives your business flexibility and agility while relieving your stress as a business owner.
It’s not especially difficult to get financing; however, there are a few things that can quickly sink your ship. Here are three common mistakes that I see when people are applying for cash flow financing.
Not Applying Soon Enough
The biggest mistake that you can make is waiting until the last minute to apply for cash flow financing. The reality of most small businesses is that the day to day tasks take priority. You have a small team and you have things that have to get done to keep the business running. It’s not often that you have time to step back and look at the big picture.
Before you realize it, payroll is due and you won’t get a check for that big invoice until next week. You immediately start looking for ways to get funds to cover payroll; however, it’s extremely difficult to obtain financing in less than a week.
The best thing you can do for your business is to take time every now and then to do some long term planning. This allows you to spot potential problem areas so you don’t get caught by surprise. You can get funding in place well in advance.
It seems ridiculous that I have to mention this one, but I really do see it happen. Business owners get in a tight spot and are willing to fudge the truth a little to get their financing in place. Most aren’t bad people; they’re just trying to do what’s best for their business.
Any finance company worth their salt will do extensive due diligence on the business and owners. The best factoring companies will perform credit checks, background searches and use various third party data sources to verify all of the information that you provide.
If you or your business is dealing with some type of issue or has had problems in the past, it’s best to be straightforward and honest up front. The circumstances surrounding the issue are typically far more important than the issue itself. Nothing will kill your application faster than dishonesty.
Finance companies have a set process to take you from the initial application to funding. There are typically several steps, many of which involve action from you. It may be that they need information from you, they may have some documents for you to sign or they may just have a few questions.
It usually doesn’t take much time to provide the information or answer a few questions, but you would be surprised at how difficult some business owners are to get a hold of during the due diligence process. The finance company will be unable to approve your application until they receive everything they need from you.
This point is especially important when you need funding to meet a specific deadline. Be sure to communicate that deadline up front and respond to any requests as quickly as possible.
From Application to Funding
The entire process from initial application to funding generally takes about a week, though the process will take longer if the company or owners have some challenges in their past. Beyond this, much of the timing is reliant on how quickly you are able to provide the information that the financing company needs.
Getting cash flow financing isn’t a difficult process, but it takes time to perform due diligence so you must plan ahead. During the process you must be responsive and honest. With these three points in mind, it’s straightforward and simple to get the funding you need.