Almost every startup knows what a cash flow problem is. When you develop a complex technology which you sell to big corporations, or export to promising but not always “reliable” countries, you risk to receive payment only several months after the work have been finished. At the same time, during this period you need to pay your rent, employees, suppliers etc. Suppliers in their turn could block materiel delivery for your current projects, which can provoke delay penalties from the final client. It may also happen that without cash flow you couldn’t sign new projects. That’s why cash flow problems can ruin your business even if you have developed a breakthrough technology.
What can be a solution to solve cash flow problems? The first thing that comes to mind is a bank loan. Indeed, the majority of entrepreneurs still goes to banks when they start facing cash flow problems. At the same time, banks are considered to be expensive and it is not so easy for a young company to get a loan. Over half of small firms applying for a bank loan are generally refused any lending, because the bank considers their credit profile as weak. Besides, applying for a loan is usually a time-consuming procedure. A lot of entrepreneurs claim that it can take up to months to be approved.
However, are banks the only place where an entrepreneur can get cash? Fortunately, no! There are some alternative ways of financing which can help businesses to access finance in an easy, fast, and cost-effective way. At the same time a lot of entrepreneurs still don’t know about alternative funding sources. Here are three examples of alternative finance and three startups that have brought them on-line, made user-friendly and accessible to wide audience.
Factoring and Marketinvoice
Factoring is a financial transaction, in which a business sells its invoices to a third party at a discount. The advantage of factoring is that the business doesn’t have to wait 30 days or longer for its customers to pay for the goods or services. The business has immediate access to cash to meet current needs, such as payroll or other operating expenses. Typical rate for factoring services is about 2-4%, depending on payment date and the final client’s ability to pay.
Marketinvoice is online trading marketplace allowing businesses to selectively sell the invoices of large business customers to raise flexible working capital. Businesses register on MarketInvoice, and then auction invoices due to be paid in 30, 60, 90 days, receiving cash in advance from global institutional investors who compete to provide funding at the lowest cost.
Dynamic Discounting and Taulia
Dynamic Discounting is an arrangement between a buyer and supplier by which payment for goods or services is made early, in return for a reduced price or discount. The same as factoring, dynamic discounting gives businesses an immediate injection of cash. For buyers it gives a possibility to reduce their expenses
Taulia has developed a platform that allows small businesses that sell to big corporations to receive payment earlier in exchange for invoice discounts. Taulia makes possible “win-win” deals between a buyer and a seller. Discounts encourage corporations to pay invoices quicker, instead of waiting until the end of a payment term. Small businesses in their turn can improve their cash flow and decrease their dependence on expensive credit. Taulia’s platform proposes dynamic payment solution where each day corresponds to a prorated discount rate.
Peer-to-Peer Lending and Lending Club
Peer-to-peer lending is a method of financing that enables groups of individual investors to lend money to small-business owners through specialized Internet platforms. The interest rates are set by lenders who compete for the lowest rate on the reverse auction model. Like crowdfunding, this form of social funding has seen rapid growth in recent years (the sector leader Lending Club announced $173 million of loans issued only in July 2013 and $2.3 billion of its total amount of loans.
Lending Club is an online financial community that brings together investors and borrowers, reducing the cost and complexity of traditional bank lending to offer borrowers better rates and investors better returns. As a borrower, you can apply for a loan and get an instant rate quote. If you’re investing, you can open an account instantly and get started building a portfolio that can earn more than other investments with comparable risk.