Do you own a small business? Read on and discover some of the different forms of working capital financing that you can select from when you need funds for your business activities.
Accounts Receivable Financing
Accounts receivables refer to the money that the companies to which you supplied goods or services owe your small business. Such unpaid sums can put a strain on your operations because you may lack capital to run other daily activities of your business.
It is possible for you to contact a financial institution so that the account receivables act as collateral for a working capital loan for your business. The financing company takes on some of the risk of collecting the receivables so that you can focus on producing goods or services for other clients.
Purchase Order Financing
Purchase order financing refers to capital financing given to a business so that the business can fund the execution of a large order that it has received. The funding agency examines the financial state of the client who made the order before releasing the funds to facilitate that order. This can save your small business from having to come up with collateral for other forms of business loans. Purchase order financing may attract little or no interest on the money borrowed since it is a short-term loan.
Production Financing
Production financing is ideal for small businesses that need funds in order to expand their manufacturing facilities. You may need to provide collateral so that a funding agency can help you to buy equipment or expand your facilities. However, the equipment or facilities that you acquire may serve as the collateral for that loan.
Contract Financing
Contract financing is available for businesses that have entered into contracts to provide goods or services over a long period. This form of capital financing helps you to fund the day-to-day activities, such as paying salaries or buying office supplies as you meet your side of the contract before you can start receiving milestone payments for the goods or services that you have been contracted to deliver. This differs from purchase order financing because purchase order financing covers a single transaction after which you receive full payment.
As you can see, many capital-financing options are available to business owners. You need to contact your accountant for advice about which particular option is most suited to a specific business need. That expert will help you to avoid taking on debt that isn't suitable for the financial health of your small business.
Share20 September 2016
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