WHY EASY BUSINESS CREDIT MAY HARM YOUR BUSINESS’ LONG-TERM GOALS

WHY EASY BUSINESS CREDIT MAY HARM YOUR BUSINESS’ LONG-TERM GOALS

Startups and businesses going through a period of growth often find that despite their success, they struggle with cash flow. Accessing much-needed cash when it takes 30-60 days to receive payment from customers is a challenge that most businesses face at some point.

When customers expect a short turnaround time but delay payment, it can be difficult or impossible for businesses to generate the cash they need without tapping into a line of credit, putting up collateral to access a loan, or opening expensive credit cards.

Banks have strict guidelines about which businesses may be eligible for a loan, forcing startups and businesses who want to grow to turn to less conventional and more expensive options for funding. It’s common for business owners to risk their personal property to access loan money.

THE MAJORITY OF AMERICAN BUSINESSES STRUGGLE WITH FINANCING

A national survey conducted by Dun & Bradstreet and Pepperdine Graziadio School of Business and Management indicates that 60% of businesses in the United States struggle with financing their growth. This number is a five-year high. It’s common for businesses with less than $100 million in revenue to experience slow accounts receivables.

Addressing this issue and keeping the business’ reputation and momentum intact may seem impossible. Running up credit card debt to support a growing business reduces access to larger bank loans by making the business look less financially stable on paper. Missing even one payment on a business credit card could also have a huge negative effect on a business’ credit rating, further complicating their ability to access much-needed funds.

The average interest rate on business credit cards is currently 15.87%. While credit cards have a wide range of interest rates and fee structures determined by the business’ credit rating, even the average rate is high enough that it could negatively impact cash flow.

Loans with strict repayment terms or inflexible contracts can do more harm than good, long-term. Unforeseen obstacles can prevent a small business or startup from paying back the loan, resulting in high late fees or even bankruptcy.

With alternative options, businesses can avoid high-interest credit cards, expensive lines of credit, and bank loans that require collateral.

FACTORING HELPS COMPANIES REACH THEIR GOALS

Companies can remove delayed accounts payable as an obstacle to their continued growth by entering into a partnership that allows them quick access to funds. Business factoring is just one form of financing that helps companies going through a period of fast growth remain financially stable while meeting the needs of their clients.

Businesses who use factoring to give them immediate access to cash can avoid the high fees associated with easy-approval accounts like business credit cards, loans, and lines of credit. This method of remaining financially stable saves business owners and managers a great deal of time. It allows them to use available funds to hire additional help, expand their advertising, or purchase much-needed equipment without having to produce collateral.

Business leaders who understand their options when it comes to accessing working capital in a way that preserves the cash flow and reputation of the business intact can make decisions that facilitate growth. Accounts receivable factoring is one way that many businesses get the money they need without spending the time and money required to access funds in other ways.

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