Good Business Practices – Financing Alternatives to Traditional Loans

Tip: Alternatives to loans might make good business sense – or they might cost more. Check terms carefully.

Vendor Credit- Trade credit or vendor credit is used when a business makes a major purchase, to be paid over time on credit from a vendor. Comparison-shop to see whether you might do better by paying for the purchase with some other form of financing. Discuss terms with your vendor, and don’t be afraid to negotiate for a better deal.

Customer Financing- Sometimes a major customer or potential customer for your business may help you by providing special financial assistance. In this case, review the terms offered and make sure the requirements would ne be too limiting for your business in the long run.

Factor Companies- The “factor” purchases your accounts receivable (money owed to you) at a discount for cash. Risks associated with collection may or may not be transferred to the factor. This provides your business with the case flow sooner. If you work with a factor, be sure the company is a reputable one that will not destroy your customer relationships through problem collection tactics. Ask for references, check them, and negotiate terms. Be sure you get the best deal possible, taking into consideration issues such as the amounts payable and the credit history of your accounts.

Leasing Companies- By leasing equipment, you avoid having to pay a large sum all at once for a purchase, and also avoid owning outdated equipment. Review the leasing agreement carefully and check the tax effect, to make sure the deal is not too expensive compared to other types of financing that could give you ownership of the equipment.

How have you thought about financing your business?