Almost every business experiences a financial emergency at some point. The key to getting through a crisis—with the business still intact—is knowing how to access cash when internal resources are not immediately available. One way to accomplish this is through invoice factoring. According to the Wall Street Journal, a company uses this method when they need immediate access to cash and chooses to sell one or more unpaid invoices to a factoring company in exchange for up to 90 percent of its value upfront.
Before the factoring company forwards the money, it checks the credit worthiness of the invoiced company. Assuming it is good, it then forwards the majority of the balance of the unpaid invoice minus a processing fee. This option is often attractive for businesses that bill customers on a net 30, 60, or 90-day basis as it allows them to improve their cash flow immediately rather than waiting for payment from their customer.
Business Cash Advances
A business cash advance, also known as a merchant cash advance, provides business owners with an immediate lump sum of cash in exchange for a share of its future sales. According to Imperial Advance, a provider of small business loans, after the company receives its advance, the loan provider takes a percentage of daily sales that are processed through its cash register.
Retail companies, restaurants, service providers, and others with a high volume of credit card sales are all good candidates for this kind of emergency business financing. This type of funding is particularly helpful for start-up organizations because it allows the owner to pay in small daily amounts and does not have the strict qualifications of a bank loan.
Personal or Business Credit Cards
One of the most convenient things about credit cards is that most business owners already have them. For those who don’t, it is a good idea to apply for both a business and a personal credit card before an emergency pops up. That way, they won’t have to wait for the credit card company to make a decision and then wait again for the card to be issued. Whenever possible, a business owner should use the credit card issued to his or her company for financial emergencies. This ensures the ability to keep business and personal expenses separate.
Many owners of start-up businesses do not have a sufficient credit history yet to apply for a credit card in the name of his or her company. The next possibility is for the business owner to use a personal credit card, although this should always be the last resort. If the business needs cash and not just a way to charge purchases, most credit cards include a cash advance limit as part of the overall credit limit. Cardholders should be able to write a check to themselves or withdraw money from an ATM using the credit card.
Business Loans Through Finance Companies
Small business owners with poor credit, lack of collateral or an insufficient credit history often have trouble getting a traditional bank loan. A post on BizFilings notes that finance companies tend to be less conservative about qualifications and can provide the money the business needs quickly. Loans provided by a finance company are typically for a shorter term and offer more flexible repayment options than business loans through a bank. While the interest rates are higher, this can be a fair trade-off in the right situation.