Alternative Financing Vs. Venture Capital: Which Option Is Best for Boosting Working Capital?

There are several potential financing options available to cash-strapped businesses that need a healthy dose of working capital. A bank loan or line of credit is often the first option that owners think of – and for businesses that qualify, this may be the best option.

In today’s uncertain business, economic and regulatory environment, qualifying for a bank loan can be difficult – especially for start-up companies and those that have experienced any type of financial difficulty. Sometimes, owners of businesses that don’t qualify for a bank loan decide that seeking venture capital or bringing on equity investors are other viable options.

But are they really? While there are some potential benefits to bringing venture capital and so-called “angel” investors into your business, there are drawbacks as well. Unfortunately, owners sometimes don’t think about these drawbacks until the ink has dried on a contract with a venture capitalist or angel investor – and it’s too late to back out of the deal.

Different Types of Financing

One problem with bringing in equity investors to help provide a working capital boost is that working capital and equity are really two different types of financing.

Working capital – or the money that is used to pay business expenses incurred during the time lag until cash from sales (or accounts receivable) is collected – is short-term in nature, so it should be financed via a short-term financing tool. Equity, however, should generally be used to finance rapid growth, business expansion, acquisitions or the purchase of long-term assets, which are defined as assets that are repaid over more than one 12-month business cycle.

But the biggest drawback to bringing equity investors into your business is a potential loss of control. When you sell equity (or shares) in your business to venture capitalists or angels, you are giving up a percentage of ownership in your business, and you may be doing so at an inopportune time. With this dilution of ownership most often comes a loss of control over some or all of the most important business decisions that must be made.

Sometimes, owners are enticed to sell equity by the fact that there is little (if any) out-of-pocket expense. Unlike debt financing, you don’t usually pay interest with equity financing. The equity investor gains its return via the ownership stake gained in your business. But the long-term “cost” of selling equity is always much higher than the short-term cost of debt, in terms of both actual cash cost as well as soft costs like the loss of control and stewardship of your company and the potential future value of the ownership shares that are sold.

Alternative Financing Solutions

But what if your business needs working capital and you don’t qualify for a bank loan or line of credit? Alternative financing solutions are often appropriate for injecting working capital into businesses in this situation. Three of the most common types of alternative financing used by such businesses are:

1. Full-Service Factoring – Businesses sell outstanding accounts receivable on an ongoing basis to a commercial finance (or factoring) company at a discount. The factoring company then manages the receivable until it is paid. Factoring is a well-established and accepted method of temporary alternative finance that is especially well-suited for rapidly growing companies and those with customer concentrations.

2. Accounts Receivable (A/R) Financing – A/R financing is an ideal solution for companies that are not yet bankable but have a stable financial condition and a more diverse customer base. Here, the business provides details on all accounts receivable and pledges those assets as collateral. The proceeds of those receivables are sent to a lockbox while the finance company calculates a borrowing base to determine the amount the company can borrow. When the borrower needs money, it makes an advance request and the finance company advances money using a percentage of the accounts receivable.

3. Asset-Based Lending (ABL) – This is a credit facility secured by all of a company’s assets, which may include A/R, equipment and inventory. Unlike with factoring, the business continues to manage and collect its own receivables and submits collateral reports on an ongoing basis to the finance company, which will review and periodically audit the reports.

In addition to providing working capital and enabling owners to maintain business control, alternative financing may provide other benefits as well:

It’s easy to determine the exact cost of financing and obtain an increase.
Professional collateral management can be included depending on the facility type and the lender.
Real-time, online interactive reporting is often available.
It may provide the business with access to more capital.
It’s flexible – financing ebbs and flows with the business’ needs.
It’s important to note that there are some circumstances in which equity is a viable and attractive financing solution. This is especially true in cases of business expansion and acquisition and new product launches – these are capital needs that are not generally well suited to debt financing. However, equity is not usually the appropriate financing solution to solve a working capital problem or help plug a cash-flow gap.

A Precious Commodity

Remember that business equity is a precious commodity that should only be considered under the right circumstances and at the right time. When equity financing is sought, ideally this should be done at a time when the company has good growth prospects and a significant cash need for this growth. Ideally, majority ownership (and thus, absolute control) should remain with the company founder(s).

Alternative financing solutions like factoring, A/R financing and ABL can provide the working capital boost many cash-strapped businesses that don’t qualify for bank financing need – without diluting ownership and possibly giving up business control at an inopportune time for the owner. If and when these companies become bankable later, it’s often an easy transition to a traditional bank line of credit. Your banker may be able to refer you to a commercial finance company that can offer the right type of alternative financing solution for your particular situation.

Taking the time to understand all the different financing options available to your business, and the pros and cons of each, is the best way to make sure you choose the best option for your business. The use of alternative financing can help your company grow without diluting your ownership. After all, it’s your business – shouldn’t you keep as much of it as possible?

US Markets in green on Friday; Dow 30 up over 345 points, Nasdaq Composite, S&P 500 up nearly 1%

US Markets were trading in the green on Friday with Dow 30 trading at 30,678.80, up by 1.14%. While S&P 500 was trading at 3,701.66, up by 0.98% and Nasdaq Composite 10,690.60 was also up by 0.71 per cent

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US Markets in green on Friday; Dow 30 up over 345 points, Nasdaq Composite, S&P 500 up nearly 1%
Earlier today, Indian stock markets ended the week on a winning note. It was the sixth straight gains for equity markets. Source: Reuters
US Markets were trading in the green on Friday with Dow 30 trading at 30,678.80, up by 345.25 points or1.14 per cent. While S&P 500 was trading at 3,701.66, up by 35.88 points or 0.98 per cent and Nasdaq Composite 10,690.60 was also up 75.75 points or 0.71 per cent. A Reuters report said that today’s strength was on the back of a report which said the Federal Reserve will likely debate on signaling plans for a smaller interest rate hike in December, reversing declines set off by social media firms after Snap Inc’s ad warning.

Source: Comex

Nasdaq Top Gainers and Losers

Source: Nasdaq

Earlier today, Indian stock markets ended the week on a winning note. It was the sixth straight gains for equity markets. The BSE Sensex ended at 59,307.15, up by 104.25 points or 0.18 per cent from the Thursday closing level. Meanwhile, the Nifty50 index closed at 17,590.00, higher by 26.05 points or 0.15 per cent. In the 30-share Sensex, 13 stocks gained while the remaining 17 ended on the losing side. In the 50-stock Nifty50, 21 stocks advanced while 29 declined.

8 Keys to Proper Diet and Nutrition

There are a few misconceptions about diet and nutrition. I don’t typically like the word diet since many associate it with specific eating habits that are followed for a period of time and then you get off the diet. Nutrition on the other hand is something that we all know is important, but it just seems a fancy word that takes itself too seriously. In the end nutrition seemed to be a better description of what I wanted to explore, so here are some basic guidelines for any general diet and nutrition plan.A healthy body is similar to a finely-tuned car. And there is nothing better than keeping the body tuned than following a balanced diet and nutrition program. This does not have to be restrictive; it should just follow some basic guidelines. The body needs food as its fuel and lifestyle, exercise and mental attitude as its regular maintenance for it to achieve its health potential. This explains the relation between health, diet and nutrition. Putting in the wrong fuel or forsaking the right fuel will prevent your body from delivering its power and best performance. Nothing is more important than proper diet and nutrition because without it, the body engine will splutter, cough and eventually stall. However, when following a balanced diet and nutrition, you can benefit from:
Added vitality and energy
Obtaining the weight that’s ideal for you
Stronger and more powerful immune system
Improved overall body performance
Delayed effects of aging
Being fit and active
Lessened fatigue and tiredness
Healthy teeth and gums
Enhanced ability for concentration
Total health which means less risks for diseases
How can you achieve proper diet and nutrition?Basically, proper diet and nutrition can be achieved from following the simple guidelines outlined below. A well-balanced diet and nutrition program includes:1. Low fat
Almost all nutritionists and health experts agree that cutting down on fats from butter, cream, fried foods, oils and margarine is the best way to reduce weight and make your modern diet and nutrition healthier. This is also particularly important for a healthy heart.2. Moderate Carbohydrates
Because many people have gone weight-conscious, they have forgotten the importance of rice, potatoes, pasta, cereals and bread to their health. Carbohydrates are important for vitality and energy so if you want to energize your body, take in foods that are rich in good quality carbohydrates.3. High Fiber
Fiber is the large indigestible part of the food that you take in everyday. It doesn’t only get you chewing, it also keeps the inner part of your body moving smoothly, helps prevent bowel cancer and gallstones, helps lower cholesterol, and keeps your weight in check. Grain breads and whole wheat are good sources of fiber.4. Vitamins and Minerals
Fruits, vegetables and grains are abundant with vitamins and minerals as well as with other natural substances that functions as antioxidants. These foods help the body fight the free radicals that you get from bad foods and pollutants that could damage membranes, and cells.5. Eat Variety of Foods
Eating a variety of foods will help you get all the nutrients your body needs. Try having a meal with foods rich in protein, carbohydrates, vitamins and minerals and you get all the good nutrients your body deserves. Each meal should contain food from all 3 macro nutrient groups.6. Limit Consumption of Sugar and Sweets
Sugar can help you stay active and on the go however, when taken excessively, adds unwanted kilojoules in your body and can displace and dispose other important foods especially in kids. Excessive intake of sugar and sweets may also cause tooth decay and other dental problems.7. Limit Consumption of Salt
The usual diet and nutrition program is laden with salt. While most people think that salt is a good flavoring for all foods, it actually masks the real flavor of the food you are eating. Not only that! Many packaged and prepared meals have high levels of sodium that is bad for your health so it is very important that you buy fresh produce. When buying packaged food, look for labels with no-added-salts or foods with reduced amount of sodium. One other alternative is to switch to sea salt for food preparation.8. Increase Intake of Fluid
Two liters or eight glasses of water is needed to keep your body hydrated as well as to keep your kidneys and other organs working efficiently. Don’t be fooled by fruit juices, energy drinks, or alcohol! Many of these drinks add calories that people ignore in their daily consumption and drinks like coffee and alcohol actually dehydrate the body. They are not considered helpful fluid because they act as diuretics that force your kidneys to excrete more fluid. Water is your best choice, so stick to it.Summary
Proper diet and nutrition is rather easy to achieve. Just incorporate the above mentioned foods in your daily diet and nutrition program. Enjoy the food you eat and take your time to appreciate them and for sure, you’ll be healthier than ever!