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?

S&P 500 Rallies As U.S. Dollar Pulls Back Towards Weekly Lows

Key Insights
The strong pullback in the U.S. dollar provided significant support to stocks.
Treasury yields have pulled back after touching new highs, which served as an additional positive catalyst for S&P 500.
A move above 3730 will push S&P 500 towards the resistance level at 3760.
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Pfizer Rallies After Announcing A Huge Price Hike For Its COVID-19 Vaccines
S&P 500 is currently trying to settle above 3730 as traders’ appetite for risk is growing. The U.S. dollar has recently gained strong downside momentum as the BoJ intervened to stop the rally in USD/JPY. Weaker U.S. dollar is bullish for stocks as it increases profits of multinational companies and makes U.S. equities cheaper for foreign investors.

The leading oil services company Schlumberger is up by 9% after beating analyst estimates on both earnings and revenue. Schlumberger’s peers Baker Hughes and Halliburton have also enjoyed strong support today.

Vaccine makers Pfizer and Moderna gained strong upside momentum after Pfizer announced that it will raise the price of its coronavirus vaccine to $110 – $130 per shot.

Biggest losers today include Verizon and Twitter. Verizon is down by 5% despite beating analyst estimates on both earnings and revenue. Subscriber numbers missed estimates, and traders pushed the stock to multi-year lows.

Twitter stock moved towards the $50 level as the U.S. may conduct a security review of Musk’s purchase of the company.

From a big picture point of view, today’s rebound is broad, and most market segments are moving higher. Treasury yields have started to move lower after testing new highs, providing additional support to S&P 500. It looks that some traders are ready to bet that Fed will be less hawkish than previously expected.

S&P 500 Tests Resistance At 3730

S&P 500 has recently managed to get above the 20 EMA and is trying to settle above the resistance at 3730. RSI is in the moderate territory, and there is plenty of room to gain additional upside momentum in case the right catalysts emerge.

If S&P 500 manages to settle above 3730, it will head towards the next resistance level at 3760. A successful test of this level will push S&P 500 towards the next resistance at October highs at 3805. The 50 EMA is located in the nearby, so S&P 500 will likely face strong resistance above the 3800 level.

On the support side, the previous resistance at 3700 will likely serve as the first support level for S&P 500. In case S&P 500 declines below this level, it will move towards the next support level at 3675. A move below 3675 will push S&P 500 towards the support at 3640.

Natural Skin Care Treatments

Here are some causes of dry skin:Medication Side EffectsAs a society, we have increasingly become dependent on medication for things like high blood pressure, tension headaches, and even depression. Skin care treatment for dryness may very well be necessary due to some side effect of your medication for a completely unrelated condition. For this reason, you always want to monitor any potential skin irritation immediately after starting any new medication. If you already have dry skin and can’t remember whether or not it was a problem before starting your medication, you may need to consult with your physician and discuss an alternative medication in order to rule out side effects as the cause of your dry skin.Poor NutritionSkin care problems are often the result of poor nutrition. Our bodies require a delicate balance of nutrients in order to keep everything functioning properly, especially the skin. Vegetarians and vegans often run into dry skin issues as a result of not consuming enough animal fats in their diet. A vitamin B12 deficiency will cause your oil glands (sebaceous glands) to function improperly, generally leading to acne.Basically, any attempt to address a skin care issue (be it oily, dry, or even itchy skin) should begin with a close look at diet. Dermatologists can best assess potential diet-related skin care problems and recommend corrective measures to naturally restore skin vitality.However, here are some foods to avoid where possible in order to keep your skin as healthy as possible:• fried foods (chicken, French fries)• processed sugars• caffeine, coffee, tea, soft drinks• high fat dairy products like milk or cheese (consuming low fat varieties of milk and cheese may not be great, but they are better for your skin!)Now the best thing that you can ingest for improved skin care is water.That’s right, water. Water naturally removes toxins from your body-so the more you drink of it, the purer your body will be. Drinking lots of water is especially good for people with acne problems and it will also help reduce the onset of wrinkles.Skin Care Problems Due to SebaceousGland ProblemsIf you have ever been to a dermatologist because of acne problems then you are probably very familiar with sebaceous glands. Because the skin needs to be lubricated, it is covered with oil secreting glands known as sebaceous glands. If these glands become clogged with dirt, then bacteria begin growing inside and a pimple is the result. However, sebaceous glands can either become clogged and dry skin is caused or they can produce too much and cause oily skin. More often than not, problems with the sebaceous glands are due to poor diet and can usually be corrected rather easily.Skin Care Problems Due to DiabetesBelieve it or not, even diabetes can cause you serious skin care problems. A person with diabetes has trouble regulating the blood sugar levels. When there is an excess of blood sugar in the body, the excess must be absorbed. To do this, the body uses a lot more water than normal and that can lead to dry skin.Skin Care Treatment for DrynessWhile diet must always be part of any skin care treatment regimen, it is just a simple fact that our bodies will need more help as we age. For this reason, a moisturizer of some sort will ultimately be needed. To this end, it is HIGHLY recommended that you use a natural skin moisturizer.Moisturizers using natural ingredients are far less likely to cause the irritating side effects mentioned earlier. Synthetic ingredients are often less expensive to use in moisturizers but they are not the best skin care option because the body is less receptive to them. Natural ingredients, on average, cause fewer side effects and are therefore better where skin moisturizers are concerned.Skin Care for WrinklesWrinkles are probably the biggest cause of all skin care treatments in the United States. As a person ages, the skin naturally becomes less elastic. As a result, fine lines begin to form on the face which ultimately become the wrinkles we hate so much.There are two main skin care strategies when it comes to wrinkles: affect the muscles that reveal the wrinkles or fill in the skin so the wrinkles are less noticeable. The first strategy involves Botox and the second Collagen injections.Botox Skin CareA person is actually having a strain of Botulism injected in their face when they opt for Botox skin care treatment. Botox actually interrupts the transmission of nerve impulses to the muscles that reveal our wrinkles. It may sound radical, but these injections do actually reduce the appearance of wrinkles on the face for a significant period of time. Now these injections can be costly and they must be repeated-but they are generally affective.Collagen Injection Skin CareMany people have a serious misunderstanding of collagen injections. The perception is that collagen is a form of fat that is injected into your face to fill in the lines caused by wrinkles. Actually, collagen is an effective form of skin care treatment for wrinkles not because it is fat-but because it is protein. In fact, collagen is a special protein that helps cells and blood vessels connect to one another. When this happens, the wrinkles fade because the collagen helps the skin to “rebuild” in areas where wrinkles form and actually fill in the lines. Again, collagen treatments tend to work but they also are expensive and need to be repeated.Natural Anti-Wrinkle CreamsA cheaper, but slower, alternative to expensive skin care treatments for wrinkles is a simple cream. Anti-wrinkle creams work to rebuild the skin texture and helps with the elasticity over time. However, unlike Collagen or Botox injections, anti-wrinkle cream skin care treatment is only applied to the skin surface. This is why it takes so much longer. Still, an anti-wrinkle cream is a cost-effective and non-invasive treatment for wrinkles that does work if given enough time. Again, in order to reduce possible side effects, stick with creams that use natural ingredients as they will react better with your skin.