Category Archives: factoring

Commercial Business Loans and How to Get One

Every business needs financial resources in order for it to operate. The thing is cash is not always readily available. Sometimes they are even tied up in receivables such as customer invoices. One of the options that businesses have and which many often practice is the getting of commercial business loans. This is a type of a debt based funding arrangement that businesses can set up with spot factoring companies. Most companies use these loans in order to provide for large capital expenditures and operations which they could not afford otherwise but should be provided for as they will either provide for growth or whose absence may prove fatal for the company. These are usually for a short term basis and may be secured by collateral or not.

commercial business loansWhat people often misconstrue is that commercial business loans are only available to large, well established and decades old companies. Do know that they are not. The only thing is most large and well established companies have done quite a number of things that newly opened companies have not yet done or are still starting to do. So whether you are an already established company, one who is still learning the ropes or a newly born one, here are some tips on how to get yourself a commercial business loan.

First, organize all your documents together. See to it that your documents especially those pertaining to your finances have been kept secured and organized. Financial institutions or spot factoring companies will look at your credit history. Do you pay your liabilities on time or do you always go beyond deadlines? Your credit score is something that you should keep an eye out as it will tell so much about your company. Furthermore, if lenders find it hard to look for and understand documents pertaining to this, it can pass you out as a company who is terribly unorganized. That is a total turn off.

Second, market your company as well. It is not enough that you express your desire to get a loan. It is also important that you communicate your company’s story, its history, what it does its processes, its people and its goals. It would also be good if you bring up a little about how you plan to use the resources. You don’t have to give them a detailed plan about it. Ideas and plans will suffice.

Third, study the financial institutions from which you’ll borrow your needed resources. It is also important that you know quite a lot about the institution you’re borrowing from. This will actually help you prepare for the needed documentations and various other related requirements they would need for them to grant you your needed commercial business loans.

Single Invoice Discounting

Also known as selective invoice, spot invoice or one off invoice discounting, single invoice discounting is a form of short term borrowing that is often used to improve a company’s cash flows or increase working capital. It allows an entity to draw money against sales invoices even before its customers have actually paid what they are due. In here, a company loans a certain percentage of the value of its invoice from a third party or financing institution. Do take note that single invoice discounting is not the same as single invoice factoring. The former uses the invoice as collateral to borrow money while the latter involves selling of the receivables. Although their effects and purposes may be somewhat similar, these two are completely different and should not be interchanged.

single invoice discountingThis type of financing is best suited for companies with seasonal trading patterns, those who trade with just a single customer and also those who prefer or need to finance against a single customer only.

It is also fairly cheaper as compared to traditional discounting as no monthly fees are involved. They too are much lower as there are no annual administration fees and only one fee per invoice transacted is charged. At the same time, this transaction can be made confidential so that your clients and customers as well as suppliers will remain unaware that you are borrowing resources against the invoices even before they have been paid. The funds that you acquire here will not only increase working capital and cash flows but it will also make up for the lack of resources needed for very important projects and related expenditures. Also, it is possible for you to get hold of the cash in less than forty eight hours. And since this only deal with a single invoice, no lengthy contracts are involved so companies would not be tied up in these contracts for far longer than they plan to.

As there are advantages, there too are drawbacks in single invoice discounting. For one, it can mean a reduction in your profit margin. Also when compared to overdrafts and bank loans, they can be more costly. Second, borrowings can be associated with entities that are in financial distress. Since you are borrowing and using your invoices as collateral, others may perceive it as a sign that you are encountering problems. Ultimately, suppliers may be hesitant to extend credit to you too. Third, companies who enjoy the increase in working capital may become too dependent. This should not be the case as you must remember that you are still borrowing and interests have to be paid.