Alternative Financing Vs. Venture Capital: Which Option Is Best for Boosting Working Capital?

There are several potential financing options available to cash-strapped businesses that need a healthy dose of working capital. A bank loan or line of credit is often the first option that owners think of – and for businesses that qualify, this may be the best option.

In today’s uncertain business, economic and regulatory environment, qualifying for a bank loan can be difficult – especially for start-up companies and those that have experienced any type of financial difficulty. Sometimes, owners of businesses that don’t qualify for a bank loan decide that seeking venture capital or bringing on equity investors are other viable options.

But are they really? While there are some potential benefits to bringing venture capital and so-called “angel” investors into your business, there are drawbacks as well. Unfortunately, owners sometimes don’t think about these drawbacks until the ink has dried on a contract with a venture capitalist or angel investor – and it’s too late to back out of the deal.

Different Types of Financing

One problem with bringing in equity investors to help provide a working capital boost is that working capital and equity are really two different types of financing.

Working capital – or the money that is used to pay business expenses incurred during the time lag until cash from sales (or accounts receivable) is collected – is short-term in nature, so it should be financed via a short-term financing tool. Equity, however, should generally be used to finance rapid growth, business expansion, acquisitions or the purchase of long-term assets, which are defined as assets that are repaid over more than one 12-month business cycle.

But the biggest drawback to bringing equity investors into your business is a potential loss of control. When you sell equity (or shares) in your business to venture capitalists or angels, you are giving up a percentage of ownership in your business, and you may be doing so at an inopportune time. With this dilution of ownership most often comes a loss of control over some or all of the most important business decisions that must be made.

Sometimes, owners are enticed to sell equity by the fact that there is little (if any) out-of-pocket expense. Unlike debt financing, you don’t usually pay interest with equity financing. The equity investor gains its return via the ownership stake gained in your business. But the long-term “cost” of selling equity is always much higher than the short-term cost of debt, in terms of both actual cash cost as well as soft costs like the loss of control and stewardship of your company and the potential future value of the ownership shares that are sold.

Alternative Financing Solutions

But what if your business needs working capital and you don’t qualify for a bank loan or line of credit? Alternative financing solutions are often appropriate for injecting working capital into businesses in this situation. Three of the most common types of alternative financing used by such businesses are:

1. Full-Service Factoring – Businesses sell outstanding accounts receivable on an ongoing basis to a commercial finance (or factoring) company at a discount. The factoring company then manages the receivable until it is paid. Factoring is a well-established and accepted method of temporary alternative finance that is especially well-suited for rapidly growing companies and those with customer concentrations.

2. Accounts Receivable (A/R) Financing – A/R financing is an ideal solution for companies that are not yet bankable but have a stable financial condition and a more diverse customer base. Here, the business provides details on all accounts receivable and pledges those assets as collateral. The proceeds of those receivables are sent to a lockbox while the finance company calculates a borrowing base to determine the amount the company can borrow. When the borrower needs money, it makes an advance request and the finance company advances money using a percentage of the accounts receivable.

3. Asset-Based Lending (ABL) – This is a credit facility secured by all of a company’s assets, which may include A/R, equipment and inventory. Unlike with factoring, the business continues to manage and collect its own receivables and submits collateral reports on an ongoing basis to the finance company, which will review and periodically audit the reports.

In addition to providing working capital and enabling owners to maintain business control, alternative financing may provide other benefits as well:

It’s easy to determine the exact cost of financing and obtain an increase.
Professional collateral management can be included depending on the facility type and the lender.
Real-time, online interactive reporting is often available.
It may provide the business with access to more capital.
It’s flexible – financing ebbs and flows with the business’ needs.
It’s important to note that there are some circumstances in which equity is a viable and attractive financing solution. This is especially true in cases of business expansion and acquisition and new product launches – these are capital needs that are not generally well suited to debt financing. However, equity is not usually the appropriate financing solution to solve a working capital problem or help plug a cash-flow gap.

A Precious Commodity

Remember that business equity is a precious commodity that should only be considered under the right circumstances and at the right time. When equity financing is sought, ideally this should be done at a time when the company has good growth prospects and a significant cash need for this growth. Ideally, majority ownership (and thus, absolute control) should remain with the company founder(s).

Alternative financing solutions like factoring, A/R financing and ABL can provide the working capital boost many cash-strapped businesses that don’t qualify for bank financing need – without diluting ownership and possibly giving up business control at an inopportune time for the owner. If and when these companies become bankable later, it’s often an easy transition to a traditional bank line of credit. Your banker may be able to refer you to a commercial finance company that can offer the right type of alternative financing solution for your particular situation.

Taking the time to understand all the different financing options available to your business, and the pros and cons of each, is the best way to make sure you choose the best option for your business. The use of alternative financing can help your company grow without diluting your ownership. After all, it’s your business – shouldn’t you keep as much of it as possible?

Choosing A Commercial Insurance Policy

Choosing the correct commercial insurance for your business needs can be daunting enough even for a seasoned businessman or negotiator. For a start-up enterprise ensuring that the business has full and proper protection against all risks, it is an even larger minefield.There are however some basic rules of insurance, which if born in mind while looking for the right commercial policy, will ensure that the enterprise is neither under or over insured and has the necessary cover in force.For a commercial insurance contract to be valid the proposer must have what is known in the industry as ‘an insurable interest’ in the object of the cover. This immediately helps define the type of property insurance policy that a businessman might require.The business risks to be insured under the policy are not the physical object themselves but the financial value of such, which is defined as the interest that a policyholder has in the objects should they suffer loss if the insured risks occur.Clearly then the type of policy that a business will require depends upon whether the proposer is the owner of the commercial property, or a leaseholder or tenant.An owner of a commercial premises who lets or leases a building, no matter the type of business activities that may be pursued there, would only have an interest in the buildings fixtures and fittings of the property concerned and any liabilities to the public that may arise from these.A lease-holders interest in the buildings may be dependent upon contract of lease and should be checked thoroughly with the agreement. Often a contract will make it the responsibility of the lessee to provide cover for the lease term.Owner occupiers of commercial premises will have a financial interest in both the buildings and contents of the property and will require insurance for both.Rented commercial property buildings cover is not usually the concern of the tenant who will only have an insurable interest in any contents of the building and in any improvements that they may have made to the property in order to carry out business.Before getting any commercial property insurance quotes it is necessary for the businessman to calculate the values of all the buildings, contents and stock. Buildings value should be based upon the rebuilding costs following a total loss and allowing for inflation. Accurate annual turnover figures will be required for contents insurance. If high value stock items are kept at the property, then the value of these should be determined individually.Applying for commercial insurance quotes online might only take a minute or two to complete, however the preparation needed to obtain accurate data to supply to the insurance company could take a lot longer. It is unlikely that even the small businessman has calculated the value of his office contents for replacement purposes.Ensuring that the information you supply on a commercial insurance proposal form is correct, is not only legally required, but is essential if you wish to avoid problems if a claim has to made at a future date. Problems can quickly arise with disagreements over the value of stock or office equipment values following a major loss, especially where the declared values are not sufficient and an average or proportional reduction to a claim is imposed.Having established any property risks that a commercial enterprise may be exposed to it is then necessary to look at all the potentialities and risks that the business might be liable for, in the course of carrying out its commercial activities.Liability insurance is essential for all enterprises, large or small.Public liability insurance protects the business against any claims from the public for loss or damage suffered, for which the business could be held liable. Employers liability, a type of workers compensation insurance, protects a business against being sued by its employees and is a legal requirement.Most commercial liability insurance is sold by trade or professional type with risks and covers that are specific to that business type. Additional liability insurance such as professional indemnity insurance which covers professionals against negligent advice or product liability for shops providing goods, are examples of such.Buying a combined tradesman or professional service stand-alone liability product is today a simple process using one of the many liability insurance comparison websites that exist online.It is possible to buy commercial insurance for both liability and property combined for any type of business, under what is called a ‘combined commercial insurance policy’. This type of flexible contract allows specific risks to be added and limits of indemnity chosen and is often known as ‘all risks’ cover.For specific types of commercial insurance risks such as shops and offices, where property values and liability cover can be easily assessed, it is now possible to compare many covers and buy online what are known as packaged policies.The Internet offers many full ‘all risks’ commercial insurance policies covering every eventuality and consequential loss, which are available from online insurance brokers, comparison sites and direct from commercial insurance companies themselves. If you have any doubts about the necessary cover for your particular business it is advisable to consult a commercial insurance broker who will offer advice and the latest market information.

What We Have Here Is A Failure To Communicate

The results of this past election proved once again that the Democrats had a golden opportunity to capitalize on the failings of the Trump Presidency but, fell short of a nation wide mandate. A mandate to seize the gauntlet of the progressive movement that Senator Sanders through down a little over four years ago. The opportunities were there from the very beginning even before this pandemic struck. In their failing to educate the public of the consequences of continued Congressional gridlock, conservatism, and what National Economic Reform’s Ten Articles of Confederation would do led to the results that are playing out today.. More Congressional gridlock, more conservatism and more suffering of millions of Americans are the direct consequences of the Democrats failure to communicate and educate the public. Educate the public that a progressive agenda is necessary to pull the United States out of this Pandemic, and restore this nations health and vitality.

It was the DNC’s intent in this election to only focus on the Trump Administration. They failed to grasp the urgency of the times. They also failed to communicate with the public about the dire conditions millions have been and still are facing even before the Pandemic. The billions of dollars funneled into campaign coffers should have been used to educate the voting public that creating a unified coalition would bring sweeping reforms that are so desperately needed. The reality of what transpired in a year and a half of political campaigning those billions of dollars only created more animosity and division polarizing one extreme over another.

One can remember back in 1992 Ross Perot used his own funds to go on national TV to educate the public on the dire ramifications of not addressing our national debt. That same approach should have been used during this election cycle. By using the medium of television to communicate and educate the public is the most effective way in communicating and educating the public. Had the Biden campaign and the DNC used their resources in this way the results we ae seeing today would have not created the potential for more gridlock in our government. The opportunity was there to educate the public of safety protocols during the siege of this pandemic and how National Economic Reform’s Ten Articles of Confederation provides the necessary progressive reforms that will propel the United States out of the abyss of debt and restore our economy. Restoring our economy so that every American will have the means and the availability of financial and economic security.

The failure of the Democratic party since 2016 has been recruiting a Presidential Candidate who many felt was questionable and more conservative signals that the results of today has not met with the desired results the Democratic party wanted. Then again? By not fully communicating and not educating the public on the merits of a unified progressive platform has left the United States transfixed in our greatest divides since the Civil War. This writers support of Senator Bernie Sanders is well documented. Since 2015 he has laid the groundwork for progressive reforms. He also has the foundations on which these reforms can deliver the goods as they say. But, what did the DNC do, they purposely went out of their way to engineer a candidate who was more in tune with the status-quo of the DNC. They failed to communicate to the public in educating all of us on the ways our lives would be better served with a progressive agenda that was the benchmark of Senators Sanders Presidential campaign and his Our Revolution movement. And this is way there is still really no progress in creating a less toxic environment in Washington and around the country.