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?

Who Can You Trust to Help Build Your Online Business?

Whether you are experienced with managing traditional brick and mortar companies or if you are entirely new to the online and tech start up industry it is important to look into finding professional guidance to help getting any business model off of the ground. Building an online business with a mentor by your side is a way to move forward with plans you have in place with confidence and excitement.Determine Your NeedsBefore seeking out an expert online mentor it is imperative to consider the needs you have with running your business and what you most require help with during day-to-day management tasks. Understanding the type of assistance you require is a way to scope out mentors who have experience in similar industries and specialize in the areas you need help focusing on more professionally while running your business.Create a Business Plan and OutlineCreate a business plan and outline to review in-depth the overall methods of reaching consumers, the demographics and how you plan to offer your content, products or services to those who are genuinely interested in following your brand and company. Having a business plan ready when seeking out a business mentor that is right for you is a way to ensure you are selecting the right professional to come on board to provide additional guidance throughout your journey.Having a business plan thoroughly complete can help to expedite the process once you begin comparing online mentors who specialize in businesses and assisting entrepreneurs, ultimately allowing you to save time when implementing new strategies.Things to Look for in an Online Business MentorWhen you have made the decision to hire an online mentor that specializes in business it is important to review various things to look for in an online business mentor that is right for you and the future growth of your company.Review the experience any online mentors have that is relevant to the type of industry or market you are currently working in. Finding a business mentor with more experience in your market and industry gives you the competitive edge when developing strategies and continuously building the audience and demographic you are targeting.It is also important to review past experience, education and credentials of the business mentors you are working with online. Reviewing portfolios and past positions gives you more options when you have multiple choices while searching for a business mentor who specializes in building, managing and growing online businesses.Talking to an online mentor who specializes in business is also recommended when you want to work with someone who meshes well with your own personal attitude and approach to managing your business. Although mentors are likely to provide advice and help with decisions it is ideal to work with a professional who shares similar goals and visions for your company to work well with one another.Check Official Websites, Portfolios and Professional Communities Once you have found an online mentor you believe in who understands and want to help your business it is also highly advisable to search for more information about the professional prior to making a decision. Check official websites, portfolios and even professional communities to verify the experience and credibility the mentor claims to have before making a decision.Asking for referrals from those who have worked with the mentor in business online is another way to feel confident and reassured when moving forward in creating new plans, strategies and marketing campaigns for your online company or eCommerce store.Working with the right expert online mentor is a method of gaining insight into how to properly manage and grow your business while also learning about various aspects of handling all decisions for your company in the future. Understanding the benefits of working with an online business mentor is ideal when you are determined to outperform competitors and become a true leader of your own destiny.

How Do I Start An Online Business And Make Money Online?

Many people have heard that you can make a lot of money by having your own online business and their first and biggest concern is how do I start an online business? This is a very good question and the good news is that it can be done in a few simple steps.The keys to achieving and enjoying long term ongoing success however are to continue learning more and better ways to improve and grow your business. This will help your business to continue getting better and better results, which will also allow you to start earning more and more money as well.One of the first things that you will need to decide on is which business model would you like to start with? For most people the easiest and quickest online business model to work with is an affiliate marketing business model. This will require the least amount of investment to start and has the potential for providing you with relatively quick results.This is the model that we will be covering in this article. However just about everything that you will learn for an affiliate marketer business model, you can also apply it to any other online business model as well.When looking to answer the question ‘how do I start an online business’ there are some key fundamental things that you should learn which will help you start seeing success as quickly as possible, things such as:How to do market research – this will allow you to check the profitability of any potential market that you may wish to pursue. You will also need to learn how to determine the strength of the competition that is already doing business in that market. If you find that the competition is too strong for new businesses, you can either pick a different market or find a sub niche, which is a smaller segment of that market.
keyword research – This is where you will want to identify ‘buyer’ keywords or the best type of keywords for your market. You will also need to choose keywords that do not have a lot of competition but that do get a good amount of search volume.
search engine optimization (SEO) – This will allow you to configure your site and your content so that they are search engine friendly. Which will allow you to rank well in the search engine results pages and get free search engine traffic to your site.- Site setup and configuration – This can be a very quick and easy process when you are using WordPress as your content management system. WordPress has made it possible for anyone to be able to setup and configure a fully functional online business website with little or no technical knowledge or background.marketing and promoting – This is one of the most important determining factors to your online businesses success. This should include everything that you learn about SEO, things like optimizing your content and link building however you should also be learning and using other forms of marketing as well.
For example you should also be doing social media marketing as well as email marketing and you may want to try search engine marketing or pay per click marketing as well.Now to answer the question ‘how do I start an online business’ here are the basic steps that you will need to take:1.) Make a list of things that you feel strongly about. This will help you to choose a business opportunity or market that you are passionate about and will enjoy working in.2.) Next you will need to do market research for each item on your list and select a potentially profitable market for you to start your business in.3.) Once you have found a potentially profitable market to start a business in, you will then need to do ‘keyword research’ to get a list of keywords that you can create your content around. This is how you will be able to attract interested visitors to your site.4.) Now its time to get your domain and hosting account setup so that you can install your site and load your content. Hostgator is a great provider for hosting services because they have very competitive prices and excellent support and customer service. And Namecheap is a great provider of quality service as well, for registering your domain.5.) The last step is to submit your site to the search engines and start your on going link building and marketing campaign.Initially this may seem like a lot to do but the key is to plan your work and work your plan until your online business is an online success. By doing this others will look at your success and then ask you, how do I start an online business, and you will be able to smile and confidently explain the entire process to them as well.