Alternative Financing Vs. Venture Capital: Which Option Is Best for Boosting Working Capital?

There are several potential financing options available to cash-strapped businesses that need a healthy dose of working capital. A bank loan or line of credit is often the first option that owners think of – and for businesses that qualify, this may be the best option.

In today’s uncertain business, economic and regulatory environment, qualifying for a bank loan can be difficult – especially for start-up companies and those that have experienced any type of financial difficulty. Sometimes, owners of businesses that don’t qualify for a bank loan decide that seeking venture capital or bringing on equity investors are other viable options.

But are they really? While there are some potential benefits to bringing venture capital and so-called “angel” investors into your business, there are drawbacks as well. Unfortunately, owners sometimes don’t think about these drawbacks until the ink has dried on a contract with a venture capitalist or angel investor – and it’s too late to back out of the deal.

Different Types of Financing

One problem with bringing in equity investors to help provide a working capital boost is that working capital and equity are really two different types of financing.

Working capital – or the money that is used to pay business expenses incurred during the time lag until cash from sales (or accounts receivable) is collected – is short-term in nature, so it should be financed via a short-term financing tool. Equity, however, should generally be used to finance rapid growth, business expansion, acquisitions or the purchase of long-term assets, which are defined as assets that are repaid over more than one 12-month business cycle.

But the biggest drawback to bringing equity investors into your business is a potential loss of control. When you sell equity (or shares) in your business to venture capitalists or angels, you are giving up a percentage of ownership in your business, and you may be doing so at an inopportune time. With this dilution of ownership most often comes a loss of control over some or all of the most important business decisions that must be made.

Sometimes, owners are enticed to sell equity by the fact that there is little (if any) out-of-pocket expense. Unlike debt financing, you don’t usually pay interest with equity financing. The equity investor gains its return via the ownership stake gained in your business. But the long-term “cost” of selling equity is always much higher than the short-term cost of debt, in terms of both actual cash cost as well as soft costs like the loss of control and stewardship of your company and the potential future value of the ownership shares that are sold.

Alternative Financing Solutions

But what if your business needs working capital and you don’t qualify for a bank loan or line of credit? Alternative financing solutions are often appropriate for injecting working capital into businesses in this situation. Three of the most common types of alternative financing used by such businesses are:

1. Full-Service Factoring – Businesses sell outstanding accounts receivable on an ongoing basis to a commercial finance (or factoring) company at a discount. The factoring company then manages the receivable until it is paid. Factoring is a well-established and accepted method of temporary alternative finance that is especially well-suited for rapidly growing companies and those with customer concentrations.

2. Accounts Receivable (A/R) Financing – A/R financing is an ideal solution for companies that are not yet bankable but have a stable financial condition and a more diverse customer base. Here, the business provides details on all accounts receivable and pledges those assets as collateral. The proceeds of those receivables are sent to a lockbox while the finance company calculates a borrowing base to determine the amount the company can borrow. When the borrower needs money, it makes an advance request and the finance company advances money using a percentage of the accounts receivable.

3. Asset-Based Lending (ABL) – This is a credit facility secured by all of a company’s assets, which may include A/R, equipment and inventory. Unlike with factoring, the business continues to manage and collect its own receivables and submits collateral reports on an ongoing basis to the finance company, which will review and periodically audit the reports.

In addition to providing working capital and enabling owners to maintain business control, alternative financing may provide other benefits as well:

It’s easy to determine the exact cost of financing and obtain an increase.
Professional collateral management can be included depending on the facility type and the lender.
Real-time, online interactive reporting is often available.
It may provide the business with access to more capital.
It’s flexible – financing ebbs and flows with the business’ needs.
It’s important to note that there are some circumstances in which equity is a viable and attractive financing solution. This is especially true in cases of business expansion and acquisition and new product launches – these are capital needs that are not generally well suited to debt financing. However, equity is not usually the appropriate financing solution to solve a working capital problem or help plug a cash-flow gap.

A Precious Commodity

Remember that business equity is a precious commodity that should only be considered under the right circumstances and at the right time. When equity financing is sought, ideally this should be done at a time when the company has good growth prospects and a significant cash need for this growth. Ideally, majority ownership (and thus, absolute control) should remain with the company founder(s).

Alternative financing solutions like factoring, A/R financing and ABL can provide the working capital boost many cash-strapped businesses that don’t qualify for bank financing need – without diluting ownership and possibly giving up business control at an inopportune time for the owner. If and when these companies become bankable later, it’s often an easy transition to a traditional bank line of credit. Your banker may be able to refer you to a commercial finance company that can offer the right type of alternative financing solution for your particular situation.

Taking the time to understand all the different financing options available to your business, and the pros and cons of each, is the best way to make sure you choose the best option for your business. The use of alternative financing can help your company grow without diluting your ownership. After all, it’s your business – shouldn’t you keep as much of it as possible?

What Is Market Research Why Is It Important to Business Success?

Launching your product? Want to know what the market is all about now? What does the data say about the current market status? Is it a good time for your product to be launched? Will the audiences perceive your product? How different it is from other products? These questions might arise in your mind always. For that there is a solution which is called Market Research.
What is MarketResearch?
It is the process of assessing the market for the launch of new products with conducting a thorough research directly with the consumer. This lets the company to identify its target market and gather statistics and data from the opinions gathered from consumers regarding the product. Market Research are mostly done by the companies itself or through third parties who are experienced in the market research field. A lot of marketing strategies can be used for market research such as surveys, product testing and directly approaching the consumer groups for their opinions regarding the product.
Now the question is What is the need for MarketResearch?
The purpose of doing market research is to assess the market related to the product or service to gather results how the consumers will react to the product. The companies may try to find out what the consumer likes and what not and where does their product stand between these and how to make it better so that the consumer perceives it. They can remodel the product according to that and bring about changes to the actual product so that it fares successfully in the market after its launch.
How is market research done?
MarketResearch requires a lot of strategies and plans to be implemented to bring out fair amount of results for the company. The companies develops variety of steps with proper planning. It gathers information regarding the market and the company must analyze the data that has been collected to look after the relevant data that can be used later on to bring modifications to the product.
What is the use of Market Research results?
The company which is planning to launch its new product must conduct the market research to find out consumers views and also data regarding the product. These data helps the companies bring changes to the new products. If the company thinks that any alterations is required to bring to the product which may result in bringing success to the product right before or after the launch. To catch the consumers eyes the companies use this data and statistics to make sure the product is worth showing interest for and the consumers will be in benefit.What is the Role of GigIndia in MarketResearch?
GigIndia is the ultimate place for finding people for conducting market research because GigIndia specializes in marketing strategies which is helpful for businesses to become successful and get best results in returns as GigIndia has a huge student workforce who can perform the tasks given to them. Apart from that GigIndia plans everything from how to conduct the surveys, provide test samples to the consumers and also gather their thoughts over certain products and they compile all the information regarding the market research programme and sends them to the company to make sure they find it useful in bringing out any changes by the help of these results.
Nowadays market research is one of the most important tools for every business because it ensures you about the market scenario going around nowadays in the market and having consumers thoughts over a product gives you the proper results as what is the good factor and what is the bad factor about the product. So it is always recommended to conduct a market research always before launching a product in the market and for that GigIndia is the best place to work with.

Online Business Inspiration – Are You Still Searching For It?

The tactics and strategies used in running a business have always been passing through different kinds of changes at different times. Every business person needs to change his methodologies according to these varied demands. And the current need of time for doing business is nothing but to go online. No matter whether you are into an offline business or online business, internet is undoubtedly the most productive tool to be used in the current scenario.In the present time, if your business is not backed up by an online support, then it is nowhere in the global competition. No matter whether you are running your own business or about to start a new one, a productive online business strategy should be an essential part of your business.It is very much essential to find out an innovative and promising business idea to give your business career a decent start. And if your exposure is not that vast and you don’t want to put a high initial investment, then the most promising business idea is nothing but to start an online business.Here are some of the fundamental reasons:
The total number of Internet users all across the globe is around 30% of the total population. This is surely an influencing business inspiration for any person, isn’t it? Once started, your business is sure to gain a platform among this huge population.
Earlier one had to invest a huge sum of capital to start a new business. It required an office room, warehouses, materials etc. to set up the new construction. But, this may not be the case for an online business. In another terms, this can be said that you don’t require a huge capital to be successful in an online business.
To start an internet related business, the major investment is nothing but your efforts towards it. Even, you may not require a separate office room to conduct your business.Can it be considered as a business inspiration? Of course yes.One more business inspiration factor is the risk associated with these kinds of businesses. If you can keep your efforts on track, then success is sure to come in your way.The possibility of going viral is very much high in an online business. It takes very less time to draw the required exposure, which eventually diminishes the risk of going unnoticed.
The technologies used in online businesses are changing very rapidly. Every day, a new kind of innovative theme comes into existence. Among these, social networking, social bookmarking etc. are the concepts which have got some immense responses from the global audience.
Gone are the days, when one had to depend on its neighbors and relatives to get leads and sell the products. In this online world, you are not confined to a geographical area. Anybody from any part of the globe may become your client and raise your business to the peak level. And who knows, someday Google may fetch you some aliens to become your customers, everything is possible in this virtual world.Are these enough reasons to go for an internet related business? Or, are you still searching for some more business inspiration? If this is the case then just give your business a trial, you will automatically find out the possibilities. Good Luck!