Kickstart your startup growth

No Access To Capital?

Working capital requirements can very quickly become a growth inhibitor to a new business. Startups lack credit history and so typically business owners find that they have limited options to get financing. They often turn to family and friends, pitch their business to investors, or simply bootstrap the business and grow at a much slower rate than what may be possible with financial backing.

Invoice Factoring- A good option for my startup?

There is another way. B2B startup businesses that are soon to begin billing customers or are generating invoices can partner up with a factoring company and utilize them to finance their growing startup. The factoring company can help by:

• Providing credit insights for new customers
• Bringing working capital to the table
• Giving you access to increasing funds as you grow
• Taking no equity to do so
  

Unlike a bank, a factoring company looks to the credit quality of a business's customers allowing even a brand new business with good customers to gain this type of financing.

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How does factoring work for startups?

A factoring company funds based on outstanding invoices/ accounts receivable. So once a business has an agreement with a factoring company, the business will submit copies of their outstanding invoices to the factoring company. The factoring company will then verify the work is done and will advance between 80-90% of the invoice value in most cases. This enables the startup business to have access to cash or working capital for their business within hours of creating their first ever invoice.

This enables a startup to:

• Make payroll
• Buy more inventory
• Re-invest in the business in whatever way makes the most sense.
  

Once the invoice is paid by the startup's customer, the factoring company would receive a small fee for providing the service (generally around 1.5% of the invoice value depending on how long the client takes to pay) and the startup would receive the rest at that time.

As businesses are constantly generating invoices for work completed, this can act as a type of line of credit for new businesses that will continue to grow as they grow.

Setting up Factoring for a startup

At Meritus Capital, we find getting a startup set up with us can be the best, easiest and quickest time to do so as there is no entity history, previous bank loans, filings, suits or the like to complicate the process. Here are a few key points about the process.

• We have a quick and easy online application that can be filled out and where select documents can be uploaded.
• Once we agree to the basic terms, we will provide you with a contract to sign.
• We can go from start to funding sometimes in as little as a few days to a week!
  

If you have any more questions, please do reach out to anyone on our team or fill out our application today to get started!

The economy is gradually improving, but many businesses are still feeling the effects of a financial crisis hangover, and wondering if the growth will continue. While some banks are loosening their purse strings, there are still many businesses that can't get the money they need. Even those that can access loans are not getting enough capital to maximize their profits. If you're one of those who needs money to grow and can‚ access the capital you need, here's how factoring can get you over the hump.

Entrepreneurs

For years, many entrepreneurs used home equity lines of credit to fund their business growth. After the housing crisis, however, banks were more reluctant to provide these home equity loans. Also, your home may have lost value and you no longer have equity to offer as collateral on a loan. Some entrepreneurs solved this problem by turning to factoring as replacement financing. If you are in this predicament, factoring can work for you as well.

Even with the economy stabilizing, most banks still have stricter credit requirements, particularly for entrepreneurs in the early stages of growth.  Business loans are not really an option for many entrepreneurs since banks look at traditional metrics, such as cash flow and debt ratios. When you are starting out those are not always the best indicators of financial health. Factoring companies can offer entrepreneurs financing because they analyze other metrics and use your company's accounts receivables as collateral. Factors provide an upfront advance of 70 to 90 percent of receivables. After collecting your payments for you, the factor transfers 97 to 99 percent of the collected amount back to you. Although there are different types of factoring arrangements, some factors even provide credit protection for your growing company by taking the hit if the invoiced company does not pay or goes out of business.

Unbankable Businesses

During the recent financial crisis, your business may have struggled. Due to these difficulties, your relationship with your bank was damaged. Now, you need time to shore up your financials and gain back your credit standing. Even though your business is doing better now, you still need financing to bridge the gap between now and the one to three years it takes to re-establish credit. Factoring is a financing method you can use until you qualify for traditional bank loans again. Some factoring companies may require a minimum commitment period or a guaranteed monthly fee, but others do not. Make sure you understand the commitment you are making upfront.

Fast-Growing Companies That Want to Increase Profits

Even though the lending environment is tougher than it used to be, some of you can still get financing from a traditional bank. So why use factoring when it is typically more expensive than a bank loan? You may be in a situation where more capital could help you generate more sales and profits. If your growing company can only get enough money from the bank to do $5 million in sales that generate $500,000 in profits, you’re leaving money on the table. What if you could borrow enough cash to bring in $20 million in sales and $2 million in profits? Even though you spend an additional $300,000 in financing costs, you would still realize an extra profit of $1.2 million dollars. ($1.5 million profit from the additional sales, less a 2% factoring fee.)

You can benefit from accounts receivable factoring if you are in any of these situations. For more details, contact us and we can advise you on how to best set up your factoring finance.

Energize means to activate or to give more life, which is exactly what cash flow does for a business. Adequate cash flow brings a business to life. Cash flow makes it grow. As the old saying goes, If you are not busy growing, you are busy dying”. There is nothing worse than watching a great idea a great business with a great idea, a product, or a service die because it lacks one thing. That one thing is cash flow, the lifeblood of a business.

That is why today I'd like to talk about how accounts receivable factoring can energize your business. This is particularly for those of you who have been stagnating while waiting for your invoices to be paid. You've been waiting for 30, 60, or 90 days just hoping for the cash to come in so you can do what you need to do to operate and grow your business whether that be start a new sales campaign, launch a new product or replenish your inventory.

You've been stressed out, robbing Peter to pay Paul (as the saying goes), all because you do not have the liquid cash to operate your company like you need to.

The Basics of Factoring

Let's start with the basics. Do you have invoices from reliable customers who have proven they will eventually pay you? If so, the next step is really fairly simple. Get in touch with a factoring company. Find out what they will pay you for the invoices. These percentages can vary widely. We normally pay 97% to 99% of face value. So if you have a $100,000 in invoices, you can receive $97,000 to $99,000 based on the details of your situation. Factoring companies will probably have you forward your accounts receivable aging report and examine three things.

• How many accounts receivable do you have?
• How long have the receivables been outstanding?
• What are the credit ratings and credit histories of the customers?
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That was not meant to be self-promotional, but just an explanation of how factoring works. How it produces cash you can use for your business. How you can take a stack of unpaid invoices and turn them into cash on hand to invest in your business.

There are basically three ways to infuse your business with cash. You can get a loan, generate revenue through sales, or take on investors.

What Does It Cost You to Obtain the Cash You Need?

What is the cost of going to the bank and applying for a loan? First, you have to be able to get a loan, and that is not easy in the current environment. Even if you can, it may cost you some collateral that the bank wants to secure the loan with, or it may cost you a higher credit score because you are utilizing more of your available credit. It may only cost you the time and the hassle of filling out the application and revealing every detail of your company. Even if you get approved, it will cost you extra time before you actually have the money in hand to operate your business. Not to mention the cost of the credit each month in the form of an interest payment. So as you see, getting a loan has a cost.

‍The Cost of Taking on Investors‍

What does it cost you to take on investors? As every entrepreneur knows, it costs you a slice of your business. That costs you control of your company, or in other words, the ability to make your own decisions and run your business the way you think is best. It also costs you a piece of your profits, or future earnings. Either way, taking on investors costs you something.‍

The Cost of Generating Revenue Through Sales‍

Now this one is a little more fun to talk about because it is about investing in your business to make it grow, i.e. cash flow. The cost of generating revenue through sales is the cost of the cash you reinvest into operating your business better, hiring great employees, expanding your sales and marketing efforts, and producing improved products and services.

The question is: Is the business growth that could come from factoring your accounts receivable worth 1% to 3% of your invoices? I want you to seriously sit down and ask yourself that question. Is the ROI worth the investment of time to explore growing your business with your assets, not someone else's?