It's All ABOUT the CASH


The phrase “Cash is King” rules in today’s business environment as much as ever. Access to cash for capital expansion, equipment purchases or necessary day-to-day operations is one of those ever-present challenges most businesses face on a regular basis.

Traditional commercial financing is readily available to qualified businesses from a vast array of lenders. The challenge for any borrower is determining which loan and which lender best suits their unique needs. For large capital expenditures such as financing (or refinancing) the purchase of a building or the modernization of facilities, a traditional commercial real estate or term loan may be the best solution. If seasonal or temporary fluctuations in cash flow are impeding business operations, the solution may be as simple as a line of credit. A line of credit provides quick and easy access to necessary cash when needed with the flexibility of quick repayment to help control interest expense.

SBA loans and other types of specialized lending make it possible for qualified businesses to get the financing they need, often times with much more flexible terms than conventional loan options. Loans are made by SBA partners, many who are classified as Preferred SBA Lenders. The Preferred Lenders Program is part of SBA's effort to streamline the procedures necessary to provide financial assistance to the small business community. Under this program, SBA delegates the final credit decision and most servicing and liquidation authority and responsibility to carefully selected lenders. Lenders are considered for this status based on their record with SBA, and demonstrate a proficiency in processing and servicing SBA-guaranteed loans.

Qualifying for an SBA loan may be easier than qualifying for other more traditional forms of financing, as SBA programs generally allow for a higher loan to value ratio, longer amortization periods and may even consider the projected income of the business versus historical cash flows when making a credit decision. SBA loans can be used to purchase or renovate real estate, acquire fixed assets, such as heavy machinery or other equipment, working capital and in some cases can even be used to fund the acquisition of a new business.

Another product that has garnered a head-turning second look in recent years is accounts receivable financing. This financial tool once reserved for businesses that could not qualify for more traditional types of credit, is getting a second life today as more financially sound small to mid-sized businesses are using accounts receivable financing to manage cash flow and grow their business.

Accounts receivable financing is simply the selling of outstanding invoices or receivables at a discount to a bank, finance or factoring company, effectively infusing cash to bridge the gap between a company’s payables and receivables. This immediate access to cash for qualifying current and future receivables greatly enhances the reliability of the borrower’s cash flow stream and, in effect, allows the borrower to operate as an all cash business.

Once a company enters into an accounts receivable financing relationship, its accounts receivable management is partially handled by the lender or lender’s service provider allowing the borrower to redirect time and resources to other more beneficial areas of operation. The lender may also assist with offering varying and flexible payment terms to the borrower’s customers, increasing the value of the receivable over time.  Depending upon the lender, the borrower generally receives detailed management reports, keeping them well informed on aged receivables, customer balances and more.

It is important to note that non-bank accounts receivable lenders are not regulated in the same manner as banks. The services provided as well as pricing vary greatly. Before making the decision if accounts receivable financing is right for your business, do your homework and explore all options: traditional lines of credit, term loans and SBA Financing.

As with all decisions involving your business, when it comes to securing financing there are a vast array of options to filter through in order to determine your best course of action. Ask your business banker for advice. Good bankers are invested in your success and strive to earn the position as a Trusted Advisor by helping you identify the option that is the right one for you and your business over the long run.

Marianne Cederlind, is the Executive Vice President & Chief Business Banker of Mission Valley Bank