Some good alternates to bank financing to fund your working capital

by Jit Mukherjii on May 9, 2016 Finance 179 Views

There are many latent funding choices that are obtainable for businesses that are affected by free flow of money. These businesses require a smooth flow of funds so that the functioning of the business is not hampered by the reduction of the material wealth possessed by the owners. A bank that can offer a loan which can be repaid at a later date is the first choice that the owners consider for carrying on the business. In this modern world, businesses cannot be carried out with certainty.

Getting sanction from the bank to acquire the loan needed becomes a problem especially for companies which have just started their business and for those companies which have already faced such problems in finance before. Sometimes the owners of companies who are not eligible to get the loan sanctioned by the bank consider about taking a risk in investing their funds. They invest their funds in the functioning of the business taking the risk of either making profit or making losses. They also consider the idea of inviting people who can invest in shares of the company.

Again there are disadvantages in the above-mentioned choices made by the owners of the company. It may become difficult for the owner to cope up with the contract given to a person who is running the business on risk or the person who has invested his money in shares of the company. The funds that  are  exhausted in paying for  the business  expenditure during the time interval till the money  that can be obtained from the sales gathered  is very much short . So the funding should be made through a funding tool which requires less time.

Shares, on the other hand, should be utilised for funding the quick expansion of business   possessions or to buy the assets which can be paid back taking a long period of twelve months. Sometimes the possessors of business are compelled to sell shares believing that there is not much expenditure to be incurred by them beyond their capability. The person who has invested in the shares will reap a profit because of the risk is taken by the possessor of the business. There are three common alternative ways of getting funds in times of difficulty.

Full-Service factoring - The outstanding accounts receivables are sold to an external commercial company which in turn buys them against some cash. This is a popular method of alternative financing for companies which are growing faster and needs working capital to fund their growth.

Accounts receivable financing – The business provides the list of all accounts receivables and that is pledged as collateral to some external commercial company against cash. The commercial company then looks after the accounts till the money is paid. The money that is received from the commercial transactions is sent to a box which is locked.

Asset based lending – This system allows money to be given against collateral of equipment and inventory of the business. The owner can utilize his assets to fund the working capital of his business.

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