Who do you call first when you own a business and need money? Your banker. Most owners think that if they need money, they have to get a loan or a line of credit. So, they will have to call their banker.
But this could be a mistake. Before you get a loan, you really need to know what your long-term cash flow needs are. By focusing on what they need right now, many owners paint themselves into a corner and make it impossible (or at least very hard) for them to get financing in the future. If you don't know what you're doing, a loan or line of credit can put you in a bad situation.
When you buy a house, the bank that gives you a mortgage also takes first position on the house. When you get a loan for your business, the bank wants first position on the assets of your business. When you get a business loan, the bank will almost always file a UCC lien, also called a commercial lien, on your business assets. Even though it may be easy to get a second mortgage in the current market, it is almost impossible to get a second loan for a business.
So be very, very careful when you pick.
You should think about invoice factoring or purchase order financing if you need a product that grows with your business, is easy to get, and uses your best asset. They have a lot of things that loans don't.
Invoice factoring is a type of financing that lets you get money by putting up your slow-paying invoices from strong commercial customers as collateral. Factoring gives you an advance on your invoices, which gives you money to pay your suppliers and cover other business costs.
Purchase order financing is your second choice. PO financing is perfect for distributors whose businesses are growing too quickly and whose bank financing options have been used up. Purchase order financing gives you money to pay your suppliers, so you can fill the order and make the sale.
Both products are easier to get than bank loans and can usually be set up in days, not months. So, if you need money for your business, you should look at all your options before going to the bank.
