Street Smart Financing For The Home-Based Entrepreneur

 

              By Ted Wooley

 

 

              Home-based entrepreneurs in need of business capital have many different, often

              unconventional, ways to raise money. After reading this article, there will be no room for

              doubt in the mind of even the most ambitious pessimist about raising business capital. Any

              business owner can raise money if he or she is willing to put in the effort. Here we introduce

              you to some creative ways to raise money for business capital.

 

              Trade Credit

 

              Credit on a good or service that you require for your home business - known as trade

              credit - is a common way to increase cash flow. Standard terms for payment are usually

              between 30 and 90 days. To get trade credit, provide a marketing plan for generating

              revenue from your inventory or other business purchase during "float" time (the period of

              time between order date and the date payment is due to the supplier). You may be surprised

              to see how many suppliers will give your business credit if you present a credible,

              home-based image.

 

              Use a Contract, Purchase Order or a Letter of Intent

 

              Convince your supplier or other person whom you do business to grant you credit by

              showing your own customers' written expression of desire to purchase. The best documents

              to substantiate this are legally binding contracts or purchase orders. If not obtainable, you

              can ask your customer to write a letter of intent to purchase an approximate amount of your

              product within a specified time period. Bottom Line: Convince your supplier you can move

              their goods or services and that they will get paid.

 

              Factoring

 

              Firms or individuals called "Factors" convert your accounts receivable into working capital,

              either immediately upon invoicing or when invoices come due. Here's how it works: You

              submit your customer's order information to the factor for credit approval. Typically, the

              factor will purchase your receivables and advance you 80 percent of their face value. The

              remaining 20 percent is held as a reserve to offset uncollectable amounts. The reserve is

              released after the bill is paid, less any deductions for uncollectables and the factor's service

              fee, known as a discount (usually 1.5 to 5 percent).

 

              Bank Financing of Receivables

 

              The major difference between banks and factors is that banks don't purchase receivables;

              they lend against them. Since you remain the owner of these accounts, you must do your

              own credit checks and absorb any collection cost. Most banks forward 80 percent of the

              receivables face value while holding 20 percent as a reserve for uncollectible amounts.

 

              Tap Personal Resources and Credit Cards

 

              One obvious way to raise money is to sell personal or business assets. The process is

              simple and it works. A personal resource available to just about any entrepreneur is a credit

              card. Few successful businesses have not had to, at one time or another, tap credit cards for

              cash advances and business purchases.

 

              Defer Payments

 

              Pay a personal visit to the accounting or loan department of your bank or mortgage servicer

              and tell them you would like to defer next month's payment, and just pay interest on the

              remaining principle. The net effect is that principle payments are deferred, the creditor earns

              more interest, and you face longer payoff dates and higher final payment amounts. But you

              will have more money up-front.

 

              Ask For Refunds

 

              Stiff competition has caused most retailers to adopt liberal return policies. Many will bend

              their "No Refunds Without Receipt" policy on merchandise they carry. Look around for

              unneeded items you have recently purchased or received. Take it back to the retail outlet for

              a refund. At a minimum, you can at least exchange the item for something you would have

              had to spend money on soon, such as a piece of office equipment.

 

              Request Access To Deposits

 

              If you are a prompt paying customer, many utility companies will allow you to apply utility

              deposits towards your next bill. That deposit then becomes capital for a growing business.

              If you're a renter, try to get a portion of the rent deposit or the pre-paid last month's rent

              payment applied against a future payment.

 

              Dip Into The Pension Plan

 

              Although bedeviled with penalties and taxes, when in a crunch you can borrow against a

              pension or retirement plan. When comparing several financing options, it might be the

              lesser evil. The best option is to borrow against the "cash value" of your retirement fund.

              You, in effect, are borrowing your own money, so the interest rate will be low. Talk to your

              employer or financial advisor to get more information.

 

              Barter For Goods and Services

 

              Bartering is becoming stronger and stronger each year, with $1 billion traded annually

              through 300 American trade exchanges. Member ship in an exchange typically starts around

              $100 and provides two major benefits. First, they complete a form 1099-B at the end of the

              year to tell the IRS how many trade dollars changed hands. (The IRS says that trade dollars

              must be treated as actual sales dollars.) Second, you can accumulate trade credit until you

              need to barter for goods or services.

 

              Borrow Against Patents, Trademarks And Copyrights

 

              It has always been challenging to establish credit using intellectual-property assets

              (patents, trademarks, or copyrights). Yet it is still feasible, however, with the right approach

              and right type of intellectual-property. Before approaching a lending institution, get your

              intellectual-property asset appraised by someone who specializes in intangibles.

 

              Turn A Loss Into A Gain

 

              If you suffered a major loss this year in your business, you may be able to turn the loss into

              cash flow. Find someone in a higher tax bracket who is looking for a tax reduction, and get

              them to invest in your company before the end of your accounting year. You gain their cash

              infusion and they take advantage of a tax break on the business loss. Locate suitable

              investors by advertising in the newspaper under the "Money Wanted" or "Partners

              Wanted" sections of the classifieds. Use a heading such as "Tax Credits & Cash-Flow."

              HBM

 

              Lecturer and author Ted Wooley also serves as president of the Horizons Unlimited Group,

              a seminar/publishing company he helped found in 1987. HUG's popular line of resources

              known as the "Insider Reports" is tailored to fill the personal and business financial

              information needs of the budding entrepreneur. Visit HUG's huge web site at

              http://www.InsiderReports.com (Selected a "Top 10 Sites for Small Business" by Direct

              Marketing Magazine 4/97) or call toll-free 888-985-8585 for a free resource catalog.