In this tough economic environment
, many small and minority-owned businesses are struggling just to keep their doors open. The Bush and Obama administrations attempted to free up credit and get banks to loan to small businesses through the Troubled Asset Relief Program (TARP), but the money has yet to make it to Main Street.
The simple fact is that obtaining a traditional small business loan is not easy anymore. If you are an African American small business owner, here are four ways you can get the money you need to keep your business going.
Factoring and Accounts Receivable Financing: This is a form of short-term financing whereby accounts receivable serve as collateral for working capital advances. Here’s how it works: Company A sells its outstanding invoices or receivables at a discount to a finance company. Company B then buys the obligation, assumes the risk on the receivables and provides cash to your business. The amount of value assigned to the account depends on the age of a receivable. Accounts receivable financing is also known as accounts receivable factoring or accounts receivable funding.
Purchase Order Financing: This is an excellent way for a business to get quick capital. It also frees up cash for critical business expenses while providing the added benefit of not appearing on the balance sheet as a business debt. All you need is a purchase order from a creditworthy commercial or government client to get started. Next, find a reliable supplier for your products and place an order with that supplier.
Equipment Lease: Businesses that need quick cash may want to consider leasing, rather than buying, equipment. Leasing provides access to many types of equipment while simultaneously reducing expenses. When you lease equipment, a manufacturer, dealer, or lender either buys or already owns the equipment you want. In exchange, you make monthly payments to the owner (lessor). The monthly payment structure allows you to treat the payments as tax-deductible business expenses. In addition, equipment lease financing is more easily obtained from a vendor than from a bank.
Merchant Cash Advance: A company purchases your business’s future credit card sales, usually for a lump-sum payment in exchange for an agreed upon percentage of future credit and debit card sales. The fees can be prohibitive for this option; partly because credit cards have high interest rates anyway, and partly because the interest on cash advances often begins to accrue immediately. For those reasons, this may be the least desirable option for many business owners.
–torrance stephens, ph.d.
