The recent economic downturn affected many small- and medium-sized businesses. Some companies could not weather the economic storm and were forced to close their doors forever. Many of the businesses that survived did so by incurring large amounts of debt or by paying their obligations late.
As the nation’s overall economic outlook improves many businesses are unable to obtain bank loans or traditional financing because of a history of late payments or an inability to build up good credit scores. Even businesses without blemishes on their credit histories are having difficulty obtaining financing because their of their owner’s bad personal credit.
Bad Credit Can Ruin a Business
Most businesses send invoices to customers for services that have been rendered or for goods that have been shipped and then wait 30 to 90 days for payment. A large company with cash reserves or with an established line of business credit with a bank can easily withstand cyclical cash shortages.
Companies with damaged credit that cannot access business loans or lines of credit can have difficulty meeting the demand for cash to pay for things such as:
• Current small business operating expenses including payroll
• Scheduled payments on existing loans and debt obligations
• Repairs or modernization of equipment and facilities
• Advertising, promotions and sales costs to attract new business
• Taking advantage of growth and expansion opportunities into new markets
Problems Associated with Bad Credit Business Financing
Like any other form of business, banks want to make money with as little risk as possible. Obtaining a small business loan or line of credit from a bank involves completion of a lengthy, detailed credit application and furnishing proof of the credit-worthiness of your company.
If your company survived the recent economic conditions with battered and bruised credit, getting financing from a conventional lender can be difficult or impossible. Financing options that might be available usually include high interest rates and collateral requirements that your business might not be able to meet.
A Bad Credit Business Financing Alternative
Invoice factoring is a flexible financing option not affected by the credit-worthiness of your company or its owners. Your company’s outstanding accounts receivables become your source of immediate cash. By assigning your invoices to a factoring company, your business receives an immediate payment representing a percentage of the outstanding invoice balance. When the customer pays the invoice, we collect the payment and send you a check after deducting the amount originally paid to you and a small fee.
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