Funding Differences

Factoring allows you to sell your existing open invoices to a factoring service in exchange for cash. Once you’ve sold those invoices you no longer have to worry about collecting them and there’s no repayment to consider.

On the other hand, a merchant cash advance is a loan against your future sales. Usually, your repayment is debited from your checking account each day or each week. 

Both financing options are reliant on your accounts receivable. While you can do a merchant cash advance if you work with invoices, you can’t do factoring without them since factors have to have existing open accounts to collect. 

Cost Differences

Here’s the big difference between the two. In factoring, you’ll sell your invoices for approximately 80% of their face value. When you consistently pass on your invoices you never have to worry about cash flow. Your accounts receivable team won’t spend their time chasing down late payments and your business doesn’t have to wait 60 or 90 days for payment to be received. While 20% is more than the cost of a traditional loan, there are significant savings associated with factoring that balance it out.

For a merchant cash advance, rates vary widely, with lenders charging anywhere from 50% APR to well over 300% often with higher rates if you are able to pay more quickly. 

The Long Term

It has become more popular for businesses to enter long-term agreements with factoring companies. They find that the cost of factoring is more than compensated by strong cash flow and the elimination of accounts receivable hassles. 

Merchant cash advances, like payday loans, should be a one-time, emergency solution, but often the high rates mean businesses get locked into a negative spiral of advances to pay the interest on the previous advance. If your business truly finds itself in a unique situation and you know you will be able to pay back the loan and move on, a cash advance can get you over the hump.

Except in very rare circumstances, if you are a business working with invoices, accounts receivable financing should always win out over a cash advance.

The post Why Accounts Receivable Financing Should Be Your Fast Financial Solution appeared first on Talon Funding.

How Invoice Factoring Works

Unlike a business loan, invoice factoring doesn’t require you to accrue more debt. Instead, you sell your unpaid invoices to the factor in exchange for cash. There’s no waiting weeks or months for approval and funding.

You don’t receive the full value of your invoices upfront. The factor typically holds 5% to 30% until your customers pay. Then you get the rest minus the factor’s fees.

Recourse vs. Non-Recourse

With recourse factoring, you’re the one responsible for paying any unpaid invoices that your customers don’t pay. It’s less risky for factors, and therefore often comes with lower fees. Non-recourse factoring, on the other hand, means that the factor assumes the risk. If a customer doesn’t pay, the company writes the debt off. One thing to note here is that some companies may require you to repurchase the unpaid invoices.

Factoring vs. Financing

Invoice factoring and invoice financing are often confused with one another. While both involve your invoices, they are different. With factoring, you sell your invoices to a factor, and the company usually takes on the responsibility of collecting the debts. Invoice financing is a loan in which you use your invoices as collateral. Once your customers pay, you pay back the loan.

The Cost of Invoice Factoring

Like other financing companies, factors charge for their services. The most common cost you’ll pay is the discount rate, which typically ranges from 1% to 6% per month. The fee gets deducted from your reserve amount, which is the money the company holds back. The longer your customers take to pay, the more your factor deducts.

Other fees watch for when choosing a factoring company include:

• Application fees.
• Maintenance fees.
• Wire transfer fees.
• Early termination fees.

Run and Grow Your Business with Invoice Factoring

Invoice factoring provides you with an alternative to a conventional business loan that doesn’t require you to take on additional debt. The right factoring solution can help you to run and grow your business. Be sure to know your options and compare them closely so that you get the best fit.

The post The Basics of Invoice Factoring appeared first on Talon Funding.

Fortunately, a variety of equipment financing options are available:

1. Peer-to-Peer (P2P) Loans

If you have a low credit score or lack the other requirements for loan approval, borrowing money from your friends, family, or business network is an ideal way to purchase equipment. By not dealing with a bank or other traditional lenders, you can work out an individualized repayment schedule and avoid the higher interest rates associated with conventional financing.

2. Short Term Loans

This type of loan is a great option if you need quick approval to purchase equipment and can afford to borrow at a slightly higher interest rate. A shorter loan repayment schedule means that you will own the equipment sooner. A portion of your profits is no longer funneled to the bank but rather back into your pocket.

3. Small Business Administration (SBA) Loans

Businesses that have been operating for a year or more may qualify for an SBA loan. This loan generally offers lower interest rates with extended repayment terms. Revolving lines of credit and short term loans are also available through the SBA. However, funding approval can take up to 2 months. If your business needs to purchase equipment quickly, an SBA loan may not be your best option.

4. Business Credit Card

Earn cash back, points or other rewards for your company by using a business credit card. This option is ideal for equipment purchases totally less than $100K. Keep in mind that if you are unable to pay off the credit balance quickly, the high interest rate charged by this type of financing may outweigh your earned reward benefits. 

5. Equipment Leasing

Unlike the other financing strategies listed above, equipment leasing allows you to rent the necessary equipment. No large deposits are required up front and no additional credit lien is levied against your business. The leasing company also provides delivery, set-up and maintenance of your equipment. Equipment leasing expenses may even be tax-deductible.

By selecting one of these financing options, you can outfit your business with the necessary equipment while minimizing any impact on your profits.

The post Retain Your Profits Upfront by Choosing the Right Equipment Financing appeared first on Talon Funding.

Before you pursue this type of funding, consider the following:

General Requirements of Different Lenders

Time is money. Therefore it’s wise to assess the requirements of different lenders before going through the application process. For example, a traditional bank will review applications from a business operating for at least 2 years with annual revenue of $250K and a minimum credit score of 680. Six months in business, 500+ credit score and $50K in annual sales are required to secure a credit line from an online lender. Credit unions, however, require membership, a minimum of 3 years in business and $100K in yearly revenue.

Two Types of Credit Lines

Once you’ve determined your business is a candidate for this type of financing, you need to evaluate if a credit line with either a short or long repayment term is most beneficial. If you can pay off the line of credit within six months to a year, thereby saving money in interest, then a short repayment term is optimal. Applying for this type of credit line is best done using an online lender, as you’ll get a decision and access to funds within a few days. On the other hand, if you desire an extended repayment schedule, applying to a traditional bank for a long repayment term line of credit is the right choice. While the application process is stringent and time-consuming, the terms and rates offered are very reasonable. Finally, don’t overlook your credit union as a path to securing a line of credit.

Application Process

If possible, apply for a business line of credit when your business is running smoothly, as this can increase the likelihood of approval. In addition, review your application thoroughly for both personal and financial accuracy. Finally, be ready to submit the following with your application: bank and financial statements, debt schedule, tax returns, legal documents and other personal information. 

Assessing your needs and researching the options are wise steps to take before applying for a business line of credit.

The post Is Opening a Line of Credit a Window of Opportunity for Your Business? appeared first on Talon Funding.

The Pros

While an MCA shouldn’t be your first choice for financing, if you find yourself in a fix, it can provide cash quickly and easily. The application process isn’t extensive and approval and funding can be completed within a week. 

There are two main ways that an MCA is structured. Your business is issued a loan which is repaid through a percentage of your future sales or by fixed daily or weekly repayments. Because it is based on your future income, there’s no collateral required for these loans. 

Finally, if you choose to repay through a percentage of future sales, your repayments will adjust as your business does, meaning you’re never on the hook for more than you can repay when your business is slow. 

The Cons

Those very attractive pros and balanced by some pretty heavy cons. A merchant cash advance has some of the same drawbacks as payday loans. The interest charged for the convenience can trap a business in a cycle requiring a new advance as soon as the old one is completed.

If you repay through credit card sales you are actually penalized for your success because you end up paying a higher APR. That’s because your repayment is fixed up front and there’s no benefit in repaying faster. For example, if you borrow $100,000, you may have a repayment of $150,000, a factor of 1.5. If you pay off the loan through credit sales in six months, your APR was 100% but if you pay it off in a year, your APR drops to 50%.

If those interest rates seem extreme, they are completely within the norm of MCA lending which can have rates over 300%. The example above shows that you are still paying back the same amount of cash, so yo may wonder what difference it makes. The fact is that traditional loans, even business credit cards may be a better option if you are strapped for cash.

If you do decide to go with an MCA, it’s imperative that you find a trustworthy lender, set up the repayment option that best fits your business and read the fine print.  

The post Is a Merchant Cash Advance Right For Your Business? appeared first on Talon Funding.

Build Relationships With Your Vendors

While you may be embarking on this fix and flip journey as an individual, the reality is your success is highly reliant on others. You need to build relationships with the right vendors if you want to see a substantial return on investment. Having a reliable realtor and a trustworthy contractor can make the difference between your project succeeding or failing.

Establish a Budget and Stick to it

While you need a budget for any project, when you are flipping a home, there are numerous ways that you can make mistakes in your finances. Investing in the property is only the first step and you must consider the renovation costs and potential selling price. The biggest mistake that many people make is investing too much into a failing property that leads to minimal or canceled out returns.

Set Boundaries and Stand by Them

This can be particularly difficult if you are new to flipping homes, but you need boundaries for the project. You don’t want to dive into a project that is beyond your capabilities. Make sure that you know what you can handle and what your finances will allow you to do before you begin.

Always Inspect the Property

While skipping the inspection may sound like a cost-saving solution, this is a grave error. In flipping projects, you need to know what you are getting into. A home inspection can help you unearth any catastrophic issues with the property and better understand the scope of the project.

Get to Know the Neighborhood

As is the case with any real estate investment, location is everything. Take time to get to know the neighborhood of your property. Even the nicest flipped home will be difficult to sell if it is in a less than desirable location.

Be Patient

Flipping homes is a process. These types of projects can experience delays, issues unearthed along the way and become a true test of your resolve; however, as you embark on your fix and flip journey, a little bit of patience will go a long way.

Fixing and flipping homes can help you develop a robust and solid financial foundation. While this can be a valuable step toward your future, don’t forget these tips to help you have a successful experience and avoid a nightmarish one.

The post 6 Tips for Beginners to Achieve Fix and Flip Success appeared first on Talon Funding.

Planning Your Taxes Poorly

Investing in commercial real estate can be both exciting and scary. It requires a lot of research and hard work, but the rewards can be worth it if you get into a property that appreciates in value and holds its value over time. Sometimes, though, that appreciation can leave you out in the rain when it comes to taxes. While commercial real estate often offers a lot of relief from taxation in the form of write-offs or government incentives, it can also be a tax liability. Rates will increase over time, and when you go to sell your property you may get hit with capital gains taxes on your investment. You should take care that if your property is at risk of appreciating too quickly or ascending a tax bracket that you’ll be able to cover any potential expenses.

Getting In Too Deep With Renovations or Repairs

Closing a deal too quickly before thorough inspection of a property can leave you blindsided by unexpected costs if there are damages or code-violations on the property. If a deal seems too good to be true, it just might be! Repairs and renovations can be pricey, but it’s better to pay a premium for good work than to have to get the same repairs done down the road if you skimp on this round.

Overextending Your Investments

Many real estate investors can find themselves making risky investment decisions because they are emotionally driven by the high potential upsides. Such investors are at risk of overextending themselves financially by entangling themselves in loans that are too steep to pay off if their investment goes poorly or even just mediocrely. Real estate is a long-term game where patient and careful investors win, not a betting table or an avenue for day trading. When it comes to real estate, a safe investment is a good investment, especially for property that will be used for a business where the business itself is the primary revenue-maker.

The post Common Real Estate Investing Mistakes To Avoid appeared first on Talon Funding.

Avoiding the Financial Challenges of a Startup

One of the hardest things to do as a startup is obtaining funds. Traditional ways of doing this can be very time-consuming and risky. Finding and convincing investors to fund your startup can be demanding of both your time and in some cases future earnings, and getting approved for a traditional bank loan can be nigh on impossible with no financial history or business property to serve as collateral. SBA loans can be a great option, but they do restrict the application of funds and can be very difficult to apply for.

Equipment leasing comes with none of the above challenges. It’s just like renting an apartment – you find a company that has the equipment you need, and you come to an agreement whereby you take ownership of the equipment and use it in exchange for monthly payments. This allows you to get the best equipment, be it the biggest vehicle or the most state-of-the-art manufacturing equipment to get your business off the ground, but without the huge expenditure at the outset. Your agreement will include the lease term and the interest rate you’ll be paying, but all of that is at a pre-determined rate that you pay monthly. It’s an expense that you can count on and consider in your budgeting.

Other Advantages

A lot of equipment leasing arrangements include a lease-to-own clause, whereby you can choose to purchase the item at market price after your lease is up, you can. This is a great option if the equipment in question doesn’t get big technology upgrades frequently. On the other hand, if it is a quickly obsolete item, you can simply choose to lease the newest iteration each time your lease term ends.

With so many great features, this financing tool can always help a business out, no matter whether you’re just starting up or have been open for decades. That said, it can be an especially helpful tool when starting.

The post Financing Your Startup appeared first on Talon Funding.

There May Be No Credit Background

Establishing good business credit takes some type of credit activity. Companies need active tradelines on a credit report in order to generate any score. A small business that’s relatively new may not have any credit card history or outstanding loan obligations. As a result, it simply may not have any credit. The best solution to this problem is to take advantage of whatever chance to build credit comes within reach. However, businesses must approach this preliminary step with caution. Not having credit may make a company subject to higher interest rates on loans or credit cards. When a company utilizes credit that bears a higher interest rate, it should do so judiciously.

Personal Credit Matters

In its developmental phases, business credit may be held back by personal credit. In the absence of a lengthy credit history for a business, lenders and credit card companies want to glean what they can about a business’ chances for success by learning about the personal credit history of the principals. A small business owner who has problematic personal credit may have some trouble inspiring confidence in his or her business.

Late Payments Have Lasting Consequences

Getting a business off the ground and developing a manageable budget may involve a little trial and error. This isn’t because of poor financial management. It’s attributable to the fact that companies don’t really know about what impediments or contingencies to their financial plans they should reasonably anticipate before they actually happen. Companies have to be very conscientious about avoiding late payments to avoid harm to their credit score.

The more that small business owners know about credit, the better equipped they’ll be to make good choices that lead to excellent scores. They should take some time to review some of the most common challenges that small businesses have to contend with on the path to building credit.

The post Common Credit Obstacles for Small Businesses appeared first on Talon Funding.

You Can’t Take Notes 

Let’s start with an obvious drawback to the business lunch: you only have two hands. It doesn’t matter whether you order a salad, a sandwich, or a steak. You will still need them both to eat. That means, if you need to write down an important name, financial figure, or a note for yourself for a question you need to ask later, it’s all but impossible to do this gracefully or efficiently.

Think about how easy this would be in a conference room, with a pen and paper or tablet if you’re more technologically inclined. You wouldn’t even have room to put them on the table at a restaurant!

Everything is a Distraction

It’s almost impossible to stay focused at a business lunch. You’re more than likely in a public place, where other parties are conversing. A restaurant is a symphony of ambient noise from waiters, kitchens, overhead music, happy customers laughing, or unhappy customers yelling.

Imagine you’re pitching for a six- or seven-figure contract with a savvy group of executives, every nuance of body language must be perfectly executed as it will be thoroughly investigated. To say that losing your train of thought could be costly would be a massive understatement!

There’s No Good Way to Present Anything

Let’s go back to our theoretical conference room for a moment. In that setting, you’d likely have access to audio and video equipment like computers, projectors, screens, maybe even dimmable lights. Even in a private room, you’re unlikely to have any of these at a business lunch. Even if you try to keep a presentation simple with hard copy handouts, good luck passing them around without spilling a drink or accidentally dipping it in sauce.

It boils down to this: there are too many variables beyond your control to risk making deals over lunch or dinner. If a potential partner suggests it, try to insist on having the meal as a social, getting-to-know-you affair and conduct the business later in an office setting. Just because people make deals over meals often, that doesn’t mean it’s a good idea!

The post Don’t Do Lunch! Why Meals Are Bad Settings for Deals appeared first on Talon Funding.