Aegis Releases Financing Guide for Businesses Lacking Bank Credit
Business financing experts at Aegis Business Credit released guidance on how businesses without established bank credit can access financing to address growth opportunities, while at the same time build a solid financial foundation for better credit options down the road. Today’s challenging business credit market has forced many businesses and entrepreneurs to seek funding outside of traditional bank financing.
Purchase order financing, factoring and asset-based lending are options Aegis offers to provide working capital for their clients.
Purchase order financing works well for importers and distributors with confirmed orders from their customers; however, is not appropriate if the business has thin profit margins on the order or if it is speculative in nature.
Factoring works well for manufacturers, distributors, staffing and other service providers with a high level of weekly disbursements and collection cycles of 30 days or longer. In addition, factoring is an efficient means to fund growth for companies with seasonal demand, or products with healthy profit margins. Factoring provides advances on accounts receivable to bridge the gap between invoice date and actual collection, and allows companies with limited operating history or financial performance to obtain financing.
Asset-based lending provides a revolving line of credit based on working assets (accounts receivable and inventory) for companies with a relatively high level of sales growth, but less than three years performance history, typically required by banks. In a relatively short amount of time, ABL lines can be taken out by less expensive bank credit once companies demonstrate a trend of profitability.
ABL and factoring are typically more flexible than bank lines of credit because the amount of financing is driven by asset value (accounts receivable and inventory) as opposed to financial statement ratio limitations, typically imposed by banks.