The Ultimate Small Business Finance Guide

Chapter 3: Small Business Financing Solutions


What are my company's assets?

Your assets are things of value that your company owns, such as cash, inventory, buildings, equipment, and investments.

Debts, Assets, and Growing Your Business

Should I use my company's assets as loan collateral?

The formula for calculating working capital is:

Current assets – current liabilities = working capital

What are the risks of using my personal assets as collateral for a business loan?

Working capital is critical to the success of your business. Without working capital, you cannot operate, as it provides the free cash flow required to purchase inventory, pay employees and contractors, lease your space, and more.

Why won't lenders fund my small business even though we have a lot of assets?

Working capital is used every day that your business is in operation. It’s used to stock your shelves, pay your team, and otherwise operate your business. Working capital may also be used by lenders and investors as a measure of the liquidity, efficiency, and the financial health of your business.

How can I grow my business when I have no money or assets?

Working capital can come from your operating, financing, or investing activities. You can learn more about each of these sources in The Ultimate Cash Flow Guide.

Can my small business borrow with bad credit or no credit?

Cash flow measures the funds flowing in and out of your business over a specific period of time, while working capital is the sum equal to your current assets minus your current liabilities.

Can I use a loan to pay off business debt?

Without working capital, you do not have the cash flow to pay your company’s short-term expenses. Keeping your cash flow positive is the key to ensuring you always have enough working capital to operate your business and meet your obligations to creditors, employees, and clients.

What is debt financing?

As a business owner or manager, you can calculate working capital using the figures provided to you on your company’s balance sheet.

Can debt really help grow my business?

Your cash flow statement shows the amount of cash flowing in and out of your business from operating, financing, and investing activities over a specific period of time. It’s a critical financial document, but you won’t find working capital here. To learn more about your cash flow statement, keep reading here.

How can I expand my business without capital?

Working capital is one of the easiest calculations to work out from your balance sheet. Simply subtract your current liabilities from current assets. As a rule of thumb, experts like to see that a company has enough working capital to pay all of its expenses for one year.

What are the pros and cons of debt financing?

Your working capital ratio, or current ratio, shows how your current assets stack up against your current liabilities. A ratio of 1.0 indicates that you may be facing imminent financial difficulties, while a ratio of 2.0 demonstrates greater short-term liquidity and is an indicator of better financial health. The working capital ratio formula is:

Current assets ÷ current liabilities = working capital ratio

Is debt financing a bad way to fund your business?

Working capital management is closely linked with cash flow management. Together, these disciplines help to ensure that you always have enough liquidity and cash flow to meet your financial obligations and grow your business. Read Cash Flow Management Basics to learn more.

Are debt factoring and invoice factoring the same thing?

Small and medium-sized businesses tend not to have large reserves of liquid assets. In fact, too much working capital isn’t necessarily a good thing (more on that below). Taking a proactive approach to managing your working capital helps ensure that you are making informed financial decisions for your business.

Are asset factoring and invoice factoring the same thing?

As a rule of thumb, you should have enough working capital to pay all of your bills for one year.

How can accounting software help my business grow?

Positive working capital means you have more current assets than liabilities, and can cover your financial obligations over the next 12 months.

Is there an alternative to taking on investors or VC funding to speed up my company's growth?

Negative working capital means you have more current liabilities than assets. For example, a construction contractor may find themselves in a position of negative working capital when beginning a new project, due to the large outlay of cash required for purchasing materials and contracting vendors. It’s critical to limit periods of negative working capital as much as possible.

Is it possible to grow my business without any external funding?

Absolutely. If you hang on to a large amount of positive working capital (greater than one year’s worth of liabilities), investors and lenders might actually see this as a drawback. Those funds could be better spent investing in the growth or improvement of your business.

Where can I find business expansion funding?

You can increase your working capital through operations, financing, or investing activities by filing and collecting invoices, reducing expenses, increasing sales revenue, reducing inventory volume, and more. Learn more in How to Increase Your Working Capital and Liquidity.

How can working capital problems be solved?

Working capital provides the cash you need to operate, so staying on top of it is one of the most beneficial things you can do for your business. Collect payments as quickly as possible to keep cash flow positive. Avoid using working capital to finance fixed assets like equipment; deploy short or long-term financing here, instead. Don’t be afraid to borrow to invest in your business, and make sure you’re maximizing the value of your accounts receivable by using a tool like invoice factoring to convert working capital to free cash flow as needed.

What is cash flow and why does it matter?

Cash flow is the measurement of net cash and cash equivalents flowing in and out of your business over a specific period of time. Cash flow tells management, investors, and others whether your company is able to pay its current liabilities. It’s an important determinant of your company’s financial health.

How can I create liquidity in my business to fund payroll and equipment purchases?

Invoice factoring is an effective, inexpensive method of improving liquidity by speeding up your invoice collection cycle and putting money you’ve already earned to work for you sooner. It allows you to purchase inventory, buy equipment, make payroll, and otherwise fund critical business operations even while extending attractive credit terms to your clients. Here’s how invoice factoring works.

Where can I find emergency working capital?

How’s your rich uncle doing? If (like most entrepreneurs) relying on a benevolent benefactor isn’t an option for you, you’ll need to proactively plan to keep your working capital and cash flow positive to avoid financial crises. You can learn more about cash flow management here. Then, view our pricing to see how inexpensive it is to put this innovative financial management strategy to work for your business.

The Cost of Capital and Commercial Loans

What are capital loans?

A capital loan provides funds to help your company with its immediate, day-to-day operating expenses. These are typically short-term arrangements designed to provide working capital, with a short repayment period and no impact on owner equity (i.e., you are not required to take on an investor or otherwise sacrifice a portion of ownership of your business).

Are working capital loans a good idea?

They can be. Working capital loans can help companies bridge gaps in cash flow, expand inventory, or purchase new equipment. In general, you want to make sure that the activities you’re financing with the loan can produce more than enough revenue to pay it back. This is where an alternative finance tool like FundThrough can reduce the risk of borrowing, as invoice factoring gives you that immediate access to funds without creating new debt. Here’s how it works.

How does equipment financing work?

Equipment financing can work in a number of different ways. Companies most commonly use loans to purchase new equipment and pay back the funds borrowed over a period of several months to years. However, since over 80% of small business loan applications to banks are rejected, business owners often have to turn to financial products or investors with less favorable terms and interest rates for help. They may be required to use personal assets as collateral, find a co-signer, or come up with a large down payment.

Speeding up your accounts receivable cycle with invoice factoring is an innovative way to improve cash flow and use funds you’ve already earned to finance equipment.

Who can provide capital loans to small businesses?

Banks and credit unions, angel investors, VC firms, and other private entities can all provide capital loans to small businesses.

What is a commercial loan?

A commercial loan is a debt obligation offered by a bank or other lender to help a company pay for major capital expenses or operating costs.

Are commercial loans a good funding option for small businesses?

They can be, but the creation of new long-term debt should not be an owner’s first choice for financing. Commercial loans allow you to spread the cost of a large, expensive piece of equipment, for example, over several years of business operations. However, you will pay interest over the term of the loan.

What are typical commercial loan terms?

Commercial loan terms often range from 5 to 20 years in duration. The amortization period is typically longer than the term, so while your commercial loan term may be 10 years, amortization could be 30.

Where can we get a commercial loan?

Commercial loans are typically obtained from banks and other financial institutions. Unfortunately for small businesses, about 80% of their applications to banks are rejected, as SMBs simply lack the business history, credit record, and assets banks demand.

In the U.S., small business owners with a feasible business plan, relevant management expertise, and other requisite qualifications can apply for the 504 Loan Program offered by the SBA. It’s designed to provide funding for growth, new equipment, new facilities, and more. This type of loan cannot be used for working capital, and you can see the (rather lengthy) list of requirements here.

The Government of Canada has a similar offering called the Canada Small Business Financing Program, which you can learn about here.

Small businesses should investigate all of their alternative financing options when seeking funding.

What are average commercial loan rates?

Business loan rates often fluctuate with the prime rate. Individual rates will vary depending on your credit history, assets used as collateral, business financial history, loan terms and more.

How can I finance my business without personally guaranteeing a loan?

It’s a great question, and one that small business owners often worry about. Are you going to have to use your retirement savings or even your home as collateral to get funding for your business? Those are things many people simply aren’t willing to risk. That’s why innovative cash flow tools like FundThrough’s invoice factoring are so attractive to small business owners. Advancing funds you’ve already invoiced enables you to put money you’ve already earned to work faster, speeding up your accounts receivable cycle and injecting positive cash flow into your operations. See how it works here.

How do I calculate the cost of borrowing?

You can start by using this simple business loan calculator by Bankrate to find the total cost and repayment schedule of a traditional loan.

For comparison, use FundThrough’s Pricing page to find the total cost and repayment schedule of funding your invoices.

Flat lay image of stack of invoices, various writing utensils, a laptop with the FundThrough homepage, and Apple mouse, and an iPhone with a calculator on the screen

Online Small Business Financing Options

How can I get funding fast?

Invoice factoring with FundThrough gives you fast access to money you’ve already earned, so you can generate working capital without taking on new debt.

Where can I get emergency funding in a hurry?

It takes just minutes to complete your FundThrough application online – there’s no personal credit check, business plan submission, or pitching required. Your application is reviewed within 1 business day. Once you’ve received your approved funding limit, money is deposited in your account each time you see a need for emergency funding and decide to factor an invoice.

How do seasonal businesses find funding?

Invoice factoring is a great short term financing option for seasonal businesses. When you have a short window of time in which to do business each year, you can’t afford to wait 30, 60, or 90 days to get paid so you can put those funds to work. FundThrough allows you to get paid right away and pay back the factored amount over 12 weeks, so you can free up cash flow to buy supplies, pay your team, and otherwise run your business.

What benefits can a small cash injection bring my business?

A small cash injection has numerous business benefits. It improves cash flow so you can purchase inventory and supplies, pay and hire talent, invest in new equipment, take on new contracts, and more.

What is invoice factoring?

Invoice factoring is a business financing solution used to bridge gaps in cash flow, raise funds for investing in new equipment, take on new business, hire talent, and otherwise grow your business. Rather than waiting for your invoiced clients to pay, you receive an advance on those funds and can put the money to work immediately.

What's the difference between invoice factoring and invoice discounting?

With invoice discounting, your invoices are used as collateral for a loan. Invoice discounting companies typically advance only 80% of the value of your invoice(s). You pay an interest rate above prime, plus a monthly fee to maintain the loan for as long as it takes you to pay it back.

With FundThrough’s invoice factoring service, you are not accumulating new debt. Our fee structure is simple, with a single 0.5% fee and no interest charges. The repayment schedule spans 12 weeks, and you have the option of reducing the fee with early repayment.

Will I qualify for invoice factoring with no business credit history?

FundThrough’s technology has revolutionized the application process for businesses, in that you don’t have to jump through the hoops you’ve probably become used to in dealing with banks and traditional lenders. You aren’t required to undergo a credit check or pitch us your business idea.

Instead, our software integrates seamlessly with your invoicing or bookkeeping software. Your FundThrough application is evaluated based on the volume and amount of your outstanding invoices, and the strength of the businesses you’re dealing with.

Can a brand new business get funding with no credit?

Absolutely. We understand that brand new businesses are the ones that need financing most and find it the most difficult to obtain! That’s why we offer funding that gives you access to revenue you’ve already earned, enabling you to put it to work right away at building your business.

Is factoring good for small businesses?

Definitely. Invoice factoring solves the most dangerous issue small businesses face: gaps in cash flow. Without free cash flow, you cannot pay your suppliers, employees, contractors, rent, or other financial obligations. Invoice factoring gives you access to emergency funds as needed, and can also be used as a proactive business planning tool to help you grow your business.

Can I get small business funding online?

You bet. In this age, why would you waste your time standing in line or begging for loans at the bank? Your FundThrough application takes just minutes to complete online, and there are no personal credit checks or other hoops to jump through.

What are the small business benefits of an online invoice factoring solution?

Online invoice factoring frees up valuable revenue and time, so you can focus on doing what you do best: growing your business. Online invoice factoring is quick and painless with FundThrough; it only takes a few minutes to apply and once your funding limit is approved, you typically receive the cash in your bank account within one day of a funding request.

How long does it take to get cash from invoice factoring?

It takes about 3 minutes to complete your online FundThrough application and connect your account with your invoicing and banking software. It then takes 24-72 for our awesome humans to evaluate your account and set your funding limit. Each time your business needs a cash injection, you simply request that we fund an invoice for you. Those funds are deposited into your bank account within one business day.

Can you get business financing approvals online?

Yes! Technology enables us to integrate with your invoicing and banking software while protecting your sensitive data, which takes the legwork out of having to fill out applications, make presentations, and otherwise spend your time and energy chasing financing. Our expert team of real humans evaluates your account to determine your funding limit, and the rest takes place online.

Is it safe to fill out a loan application online?

Absolutely. Your data security is our top priority, so we use bank-grade encryption on all of your data, whether resting or in transit. We do ongoing security scans to ensure we are protected above industry standards against all known threats and use

world class infrastructure to ensure your data is physically safe. We collect and store only the information we need to operate the service for you, and we’ll never share your data with third parties without your permission.

Where can I find the best financial planning resources for my business?

We recommend that you start with our Ultimate Cash Flow Guide, which connects you with a wealth of critical information and resources on cash flow. Failing to manage cash flow is the #1 reason businesses fail, so this is a great place to begin laying the foundation that will help you plan for success.

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