As you probably know already, running a B2B companies is very different from running a business that’s focused on selling to consumers. The art of marketing to other companies is very subtle and nuanced, making one of any number of mistakes could set your company up for failure rather than success.
These mistakes include:
- Making The Buyer’s Decision Too Hard Or Risky
- Having An Unclear Value Proposition
- Too Long A Sales Cycle
- Not Having A Scalable, Profitable Process
- Spending Money On The Wrong Things
The Commercial Finance Group has been in business for over 40 years. During that time, we’ve learned a lot about what it takes to keep the doors of small to mid-sized businesses open. We realized that when it comes to providing cash flow solutions, traditional financial institutions like banks are a little one note. Come to them with your cash flow problems and they’re likely to offer you one product: a commercial loan.
Sadly, this one-size-fits-all approach to lending leaves many small and mid-sized businesses out in the cold. Not all of them want, need, or can even qualify the loans offered by most banks. That’s where we come in.
Specializing in meeting the needs of B2B companies for several decades, The Commercial Finance group offers customized lending solutions that listen to your unique set of problems and set out to eliminate them in a way that’s convenient–and most importantly–good for your balance sheet.
We offer factoring, receivables financing, asset-based loans, and other services that make it easier for B2B companies to survive and thrive. We have a long track record of success for companies of all types, and we’d love the opportunity to put our experience to work for you.
In this post, we’d like to take a closer look at the different types of financing that exist for B2B companies and why the factoring and receivables financing we offer at CFG is best in most scenarios. Want to learn more? Contact our east or west coast offices, or submit our online application for financing today.
Types Of Business Financing
When it comes to commercial financing, alternative funding options typically fall into one of two categories: revenue-based and receivable-based. Learn more about the difference between these two below.
Revenue-Based Financing – “Revenue based financing is a loan where repayments are based on a percentage of your business’s revenue rather than a fixed amount. For high margin, high growth businesses like SaaS companies, this can be a great alternative to equity financing. For brick and mortar small businesses, this works more like a merchant cash advance,” explains FitSmallBusiness.
How Revenue-Based Financing Works:
Instead of offering you permanent loan terms and a fixed monthly payment, revenue-based financing offers a bit more flexibility. With this type of small business loan, the amount you’re required to pay the lender each month varies based upon how much money your company brought in during that time period. Have a good month of sales? Your payment will go up. Hit a seasonal slump in sales? Your payment may go down. “Because repayment of the loan is based on your revenues, the time it takes to repay the loan will fluctuate. The faster your revenue grows, the quicker you’ll repay the loan and vice-versa,” continues FitSmallBusiness.
Which Businesses Might Pursue Revenue-Based Financing?
- B2B businesses with high gross margins
- B2B businesses with subscription based revenue models
- B2B businesses with a steady stream of monthly recurring revenue (MRR)
Receivable-Based Financing – “Receivables (A/R) based financing involves the use of the borrower’s accounts receivable (credit) sales to secure short-term loans. It’s a form of asset based lending, but instead of using a combination of inventory, equipment, receivables and other assets to secure the loan, only the organization’s accounts receivable are pledged,” explains ABC.
How Does Receivable-Based Financing Work?
Some people, even our colleagues in the B2B financing industry, use the terms “receivables based financing” and “factoring” interchangeably but this isn’t accurate. While both of these lending solutions are a way of immediately correcting cash flow problems, they do so in two very different ways. Factoring is the process of selling receivables to a third party at a discount in exchange for immediate cash. Receivables financing, on the other hand, is the process of obtaining a loan by borrowing against A/R.
Why Is Receivables Financing Better For B2B Companies?
So why is it that we believe receivables financing is one of the best ways to solve B2B cash flow problems? We promise it’s not just because we offer this service, and you’ll be glad to know, other financial experts agree with us.
“Receivable-based financing providers…are good for B2B businesses that need capital to cover the period between when they send an invoice to those businesses and when they receive payment,” explains Entrepreneur.
So why is this the case?
- Need For Financing Is Short-Term – As mentioned in the quote above, B2B companies are typically looking for lending solutions that will tide them over for a very short period of time. Most clients of B2B businesses take between 60 and 90 days to pay their invoice in full. You could just bite the bullet and go without ordering toilet paper for the employee restroom during this time, or you could use receivables financing to bridge the gap. As soon as the invoice is paid, your loan is paid back in full, and your balance sheet is no worse for the wear.
- Your Clients Are Reliable, Just Slow – Many B2B companies work with government agencies–at the local, state, and federal level–which are notoriously slow to pay their bills. Every invoice you submit must go through multiple levels of approval before the final check can be cut. You’re not worried that they won’t pay, it’s just the fear that it will put you in the red while you’re waiting. This is the perfect scenario for receivables financing because you don’t have to worry about being left holding the bag, or in this case, the bill.
- The Company Isn’t Bankable – Some B2B companies, despite being profitable, aren’t deemed bankable for one reason or another. It could be that their credit history is too short or that their owner has experienced negative financial troubles in the past. Whatever the reason that you’ve been turned down for short-term financing at a traditional bank, don’t give up just yet. Receivables financing can provide a path forward, allowing you to buy time and build a bridge to bankability with the help of The Commercial Finance Group in Los Angeles.
If you’re a B2B company that feels like it’s running out of options for your cash flow problems, we hope you’ll give us the opportunity to show you why so many of our customers have been loyal for over a decade. We are your partner in business, working hard to provide you with account receivables financing so that you can get back to running your company without fear.
