Debt Based Financing: Rethinking the Model for Businesses

July 26, 2018 by CNH Finance, LP in category “Financing”

Debt based financing seems to be the standard method for everything from purchasing a car or house to launching a business. However, the economic landscape has changed drastically over the past few years alone, and businesses are looking for more efficient funding models than debt based financing.

Debt Based Financing Hinders Businesses

For businesses across all industries, debt based financing presents a tremendous risk. Every business needs a source of working capital, but debt based financing, such as bank loans, can some back to bite entrepreneurs before they even achieve growth or start to turn a profit. For many businesses, taking out a loan requires collateral, which means either an integral part of the business itself or even personal property is put on the line. Trying to get out from under that debt eats into revenue and capital reserves. Many businesses go bankrupt, not from a lack of sales, but from trying to juggle debt in the face of becoming established and getting a secure foothold in the marketplace.

Alternative Solutions to Debt Based Financing

A quick search on Google will yield dozens of alternative funding solutions for businesses, but not all have the interests of entrepreneurs in mind. The latest trend, crowdfunding, may not yield the capital businesses need, and if the goal isn’t met, the funds are returned to the people who pledged money. In some cases, it even opens businesses up to lawsuits because the funds weren’t used as specified in the campaign. Cash advances may not come with debt, but they do come with high interest rates, hidden fees, and large balloon payments. There are a number of equity alternatives, but business owners have to give up some or most of the control of their companies, based on the terms and amount of capital needed.

Lines of Credit without Debt

Many business owners hold to the belief that lines of credit are only available to businesses with good credit ratings. Asset based lending offers revolving lines of credit based on the hidden value of owned assets like property, equipment, receivables, and other items. The unsecured line of credit is not based on credit ratings, nor is it considered debt based financing. Businesses can use asset based lines of credit as a renewable source of working capital that actually grows with their operations.

CNH Finance specializes in working capital solutions that fall outside of debt based financing. If you need working capital, but do not want to sacrifice equity or take on unnecessary debt, contact the experts at CNH Finance today.

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