Small Business Factoring and Microfinancing For Small Companies

Getting the right type of financing for any business is difficult; finding financing for really small businesses (microbusinesses) with fewer than 4 or 5 employees is extremely difficult. Because microbusinesses have low revenues due to their size, most larger financial institutions are not too interested in offering them financing.

Large institutional lenders prefer to focus on bigger accounts that can generate higher lending fees. Also, most institutions have formal guidelines that most applications must follow. For example, the small business must have:

  • full financial reports and copies of all pertinent records
  • formal controls for inventory
  • a track record of profitability (usually a minimum of two or three years)
  • assets that can be pledged as collateral/security

Many small companies – especially microbusinesses – operate informally and can’t always meet these criteria, especially when the financing result is uncertain.

A small business financing option

One increasingly popular solution for financing very small businesses is small ticket factoring – the microfinancing version of conventional invoice financing. Small ticket factoring is a targeted form of financing that can help microbusinesses that have working capital problems and meet the following criteria:

  • the company must sell products and services to corporate clients that pay within 60 days
  • the company’s customers must have good commercial credit
  • the company (and its invoices) must not have liens or encumbrances
  • the company must have healthy gross profit margins – 20% or above

Do you have this problem?

Are your clients paying their invoices in 30 to 60 days? Do you need funds sooner? This common problem for small business owners can be solved by financing your invoices. This program improves your working capital and solves the main cash flow problem. Small ticket factoring solves only a very specific problem: cash flow shortages due to slow-paying clients. However, it solves this problem very well.

How does factoring work?

A factoring company provides you with funds for your open invoices, while holding your receivables as collateral the transaction. The transaction is self-liquidating and completes once your customer pays the invoice. In practice, this microfinance solution enables you to minimize the financial impact of offering terms to clients. As a result, it can help you grow and expand your client base.

Most invoices are funded in two installments. The first installment covers about 80% of the receivable and is provided immediately. The second installment covers the remaining 20%, less fees, and is provided once your customer pays in full. For additional information on the program, read “What is Receivables Factoring?

Ideal for small companies

Factoring can improve your working capital, stabilize your cash flow, and provide a financial base that can support company growth. The line is designed for growth and limits can be increased easily. As a small business, you can leverage the receivables of your best commercial clients to grow your own company. Unlike conventional lines of credit, factoring is easy to get.

Why work with us?

As a leading factoring and purchase order financing company, Commercial Capital LLC (Canada) can provide your small business with a competitive quote. We believe that a well-informed prospect makes a good client, and we have one of the most comprehensive websites on the subject. If you have further questions, call us toll-free at (877) 300 3258. We have offices in Toronto and provide services to most provinces in Canada.