Bootstrapping a Business via Factoring

bootstrappingMany start-up companies that are looking for financing are finding conventional loans hard to come by. As commercial lending is still weak and small business lending remains flat, securing a lending source is as difficult as it has ever been.

In the wake of an ongoing financial crisis, banks have continued to tighten their lending practices in order to lower risk levels and comply with tougher regulations. This leaves millions of entrepreneurs without a source of financing for starting up new companies.

Many small business start-ups have resorted to what is called Bootstrapping. This is term that refers to starting and running a company with no or little capital. This approach, however, requires a large amount of creativity, ideas and a significant amount of luck to quickly generate cash flow and operate at a low cost. In the traditional sense, a bootstrap is a strap on to top of a boot for leverage to pull the boot on. In the business world it is creating leverage to start up a business with very little or nothing.

Invoice Factoring can be a valuable tool for bootstrapping companies. For example: A service company has an opportunity start up with a new client that requires adding resources (like new employees). Normally, this could be an extremely difficult situation for a start up. However, the business can receive immediate funds from a Factoring Company upon issuing the invoice and, in turn, use the funds support the resources needed (like payroll) for the new customer. There are many other examples, but the theme is the same: Cash from factoring is used to pay for labor, materials, or inventory in conjunction with completing delivery and issuing an invoice to the customer.

What’s more, the business can continue to utilize Invoice Factoring to manage cash flow and continue to grow the business – all without a cash outlay or conventional loan. It is all about control and cash flow management. More savvy business owners will work the factoring fees into the product or service provided. Others use the extra cash to take quick-pay discounts from suppliers by paying early. With the right financial strategy, factoring can also provide long term cash flow management, not just a quick fix.

As more and more start up companies discover the benefits of factoring, entrepreneurs are warming-up to the idea that there is a readily available source of cash hidden within their accounts receivable.