Business Details - Non Traditional Loan And Selling Account Receivable
A non-traditional loan is a loan that is not obtained through traditional means
, such as bank loans. Business owners usually look to non-traditional loans when they have been denied by traditional lenders because of bad credit history or because they otherwise pose a high-risk to lenders. Oftentimes, a non-traditional loan can be more beneficial to a business owner when compared to traditional loans.One type of non-traditional loan is heavy equipment financing. Unlike leasing, financing equipment means that business actually purchases the equipment through a loan and then makes payments on it. There are many benefits to financing heavy equipment. First-year expensing allows an individual to deduct a certain amount of the cost of the purchase for the first year. Also, the business owns the equipment, which adds to the fixed assets of the business. With regular maintenance of the equipment, a business may keep them for much longer, which could be more cost-effective than leasing.
Venture capital is another type of non-traditional loan. Venture capital supplies long-term funding for a specific need, such as fixed assets. Venture capital firms take the profitability and management of a business into consideration before supplying capital. Once a firm decides to fund a business, it is usually interested in aiding the companys success because it wants to make a return on its investment. The minimum investment amount and the terms of different venture capital firms vary based on the standards they hold businesses to. To get the best venture capital plan, a business owner should research all of the available programs and choose the one best suited to the businesss needs.
Selling account receivable, also called factoring, allows a business to increase working capital quickly and without incurring debt or interest. Heres how it works: a business in need of additional capital sells its accounts receivables at a discount to another company, called a factor. The factor gives the business the value of the accounts, and in return collects the payments from the businesss customers until the value is paid off.
In order to sell its accounts receivables, a business usually has to meet certain requirements. A business has to accept and process credit card purchases and must have been doing so for a specified amount of time, usually three months. Most factors do not require credit checks or excessive financial documentation; they only require a business to have a certain amount of credit accounts.
Selling account receivable has many benefits over traditional loans and financing. There is no debt or interest incurred, because factoring is not a loan. This also means that the business owners assets are not at risk. The factor assumes the risk of the businesss customers paying off their accounts on time. Factoring can also improve a businesss credit score because it allows the business to concentrate on paying off outstanding loans and selling its services or products.
Though factoring can be more beneficial for a business than taking out a loan, its important to research all available factoring options. Many may differ in requirements and discounts.
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