Working Capital Factoring

Written by Patricia Tunstall
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When working capital in a small business starts shrinking and the downward trend is not being reversed, factoring immediately comes to mind as a possible solution. It is preferable from a business standpoint to be able to use assets to finance the business, rather than seeking outside assistance, but this is not always possible. There are some tried-and-true methods that may turn things around, and these should be considered before turning to financial institutions.

Use Assets for Financing

Convertible debt may not be to everyone's liking, but it is a method of raising working capital. This technique lets your lenders monitor the progress of your business, and if it prospers, they can exercise their option to convert their loan into an investment. If your business grows, this arrangement benefits all the parties involved.

If you own a lot of equipment, but are short of cash, you can sell your equipment to a party who will lease it back to you as asset-sale lease-backs. You receive cash from the sale, and only have a monthly payment to meet. Equipment leasing is another means of obtaining the machinery and equipment you need, but you save the money it would take to buy the equipment, and only have a monthly payment.

A limited partnership is a standard way to obtain funds by setting you up as a general partner who assumes all the financial risk. Your limited partners invest in your business, but share none of the risk, except for their original investment. Factoring is an increasingly popular method for acquiring financing swiftly by selling accounts receivable at a discount for instant cash.

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