Working Capital: Financing Sources Are Not All The Same

January 11, 2018 by CNH Finance, LP in category “Financing”

Working capital is essential to the success of every business. However, finding a reliable source of working capital can be a challenge unto itself. Many of the working capital solutions offered have limitations which can actually end up doing more harm than good in the long run.

Working Capital Loans

Loans are fairly standard for businesses seeking working capital. Business owners put up collateral and take on debt in exchange for the capital they need. The amount of capital is finite, so if a business needs more, they must apply for a new loan. This means more debt and lower business credit ratings. On one hand, if a business is taking out a loan to cover expenses, the accumulated debt can create an even greater financial strain. On the other, if a business is using a loan for growth, the debt can hinder momentum, and prevent the business from reaching its potential. For these reasons and more, entrepreneurs are moving away from loans to seek alternative forms of financing.

Alternative Financing For Working Capital

Alternative financing has been a trending solution for business owners for quite a few years now. Alternative financing is supposed to be flexible, affordable, and it does not place any debt on the books. Yet this isn’t always the case. Solutions such as merchant cash advances promise an infusion of working capital without debt or impacted credit ratings. They claim to be flexible, because there are no fixed payments. This almost seems too good to be true. It is. First, there is no debt or collateral needed, so the interest rates are much higher than even traditional loans. Second, the payments are initially flexible because they are not fixed. A small percentage of each sale goes towards paying off the balance. However, with the high interest rate and other fees, the balance is rarely repaid with the terms of the agreement. This leaves businesses with large balloon payments at the end, often with penalties on top of it all.

Asset Based Working Capital Solutions

Asset based financing offers a solution that stands apart from both traditional loans and other alternative financing methods. Asset based lending uses the value of fixed assets such as receivables and equipment, and creates a revolving line of credit. This revolving line of credit works like any other, to provide a renewable source of capital to businesses of all sizes. As the business grows, so does the amount of financing available.

At CNH Finance, we specialize in asset based solutions. If your business needs working capital, but you would rather avoid the debt of traditional loans, or the high fees and interest rates of alternative financing methods, contact our offices.

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