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Alternative Financing Options in Today’s Economy

Written by Lanette Tucker

Topic: Financial LiteracyPublished October 25, 2012
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For many years, an environmental attorney in Texas had a dream to pursue a passion of his, creating a line of USDA certified organic yet delicious candy bars and snacks. Five years ago he made it happened and started a business offering 3 different types of organic candy snacks. He stayed true to his vision and kept all his products 100% certified USDA organic, only using ingredients from organic farmers to create his delicious tasting products. Once the products were created, the next challenge was how to get them out to the masses. Initially he set up small distribution deals with various high end food retailers, such as Whole Foods, where his company had limited distribution on the store shelves, with deals set up where he would need to buy back any product that did not move, with low profit margins and high risk. As his products started to get out in the market, he continued his goal of trying to find a distributor that would commit to a large quantity purchase. Finally, a very large offer came from a distribution company that wanted to purchase his candy and distribute it in bulk to a chain of retailers. Suddenly he found himself in a ‘be careful what you ask for you just might get it situation’, with a need to fulfill a seven- figure order for his product, which would require over $400,000 of cost to fulfill. In today’s economy especially, it is next to impossible to get that sort of loan from a traditional bank, especially for a new business with little collateral and any potential credit issues. This is a position many small businesses are finding themselves in, where there are orders they need to fulfill in order to make profit, but the initial cost of filling the order is beyond their reach, and the banks are not able to help. Unsure of his next step, he turned to a company that offers invoice factoring services. Invoice factoring companies actually purchase your accounts receivable, so that the business owner receives the funds immediately, of course at a percent cost, and the factoring company takes on the burden of the collection of the accounts receivables. It is the factoring companies responsibility to decide whether or not the account is collectible, and if so they take it on and provide their clients with the money they need almost immediately.rnThese type of non-traditional funding options are becoming more and more popular with small businesses that are finding it harder than ever to get traditional loans at the banks, whether it is due to credit issues , lack of collateral, or any other type of issues. Banks actually are starting to refer their non-fundable clients to factoring companies. The factoring companies are in a position to take a closer look at individual situations and receivables and make the decision if are comfortable taking on the collections. Because of factoring, this business owner was able to fulfill his seven figure order quickly, with minimal risk. Now he will be able to continue working with this large distributor and grow his business to the next level, following his dream.

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About the Author

Paul Joachim has been with Paragon Financial for 3 years as a marketing consultant. His expertise is in factoring and applying financing options to grow a companies profits. Paragon Financial was founded in 1994 with the initiative to afford growing businesses an alternative to conventional bank financing. When banks either couldn't grant funds or bestowed too little, Paragon could promptly offer them a steady stream of cash through the factoring of their account receivables.
Paragon Financial offers invoice factoring, invoice financing, invoice funding, purchase order financing, accounts receivable financing and factoring to growing businesses of every size.