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?

6 Mistakes That Can Ruin Your Online Travel Business

Travelling is one thing that you may find common in everybody’s hobby nowadays. In fact, it is a passion for many. People are getting busier and stressed out with each passing day. And traveling is the only thing that can help them to cut off from their busy schedules and get a bit relaxed. As a result, more and more people are in continuous search of online travel businesses that can help them plan their dream holidays. This has led to a massive rise in the competition in the travel business industry. You have to be distinctive to make your online travel business a success.A considerable amount of work goes into setting up your travel business, enhancing the showcase, and getting the desired number of customers. And a few mistakes here and there can ruin your venture even before starting.Here, are the most basic mistakes that you must avoid or it might kill your online travel business even before it takes off:1. Not offering complex travel services
People can easily plan their routine point-to-point tours or trips with the help of the Internet. What they need is someone to help them plan their trips with varied & complex requirement combinations. You must allow the customers to create and plan their travel packages as per their convenience. Providing regular travel packages will do no good to your online travel business but will instead lead the customers to continue planning their trip on other travel websites.2. No prompt support
Customer satisfaction is the first & foremost requirement in the travel business. You should be within your customer’s reach at any point of time. Yielding prompt support to your customer’s queries & complaints can save many of your customers from moving on to other travel portals. Try giving quick solutions and clearly mentioning all the instructions can help your business from getting bad reviews on Google & other social media platforms.3. Poor user interface
It’s very simple: “People buy what they look at and like”. So, it becomes necessary to have an attractive and engaging user interface. Customers should be easily able to traverse through your travel portal and get all the things they want. Your travel portal needs to have a simple yet classy design with an appealing call to actions, appropriate sorting filters and easy payment & checkout options. All these will help the customers to take up your proposal at the most opportune time.4. Not having a Unique Selling Proposition (USP)
There are numerous travel websites on the Internet. Following the same strategies like them won’t do any good to your business. It’s tough to beat them & move forward. At this point, you need to have a Unique Selling Proposition (USP). USP is the thing that differentiates you from the rest of the crowd. This means that you need to deliver something that none of the businesses from your niche does. For example, you can transform your business message to sell expert advice & personalized services rather than some deals, offers & discounts.5. No promotions or marketing
Promotions or marketing is the best way of reaching out to your target audience. Most of the travelers start searching online or on the social media platforms before planning their trip. Lacking marketing and promotions will make you lose some of your potential customers. You can hire an Internet marketing company to do this task for you.6. Lack of personalization
People don’t like to spend much time browsing all the options. They prefer websites that provide them with relevant suggestions as per their needs and interests. In this scenario, personalization can help you. Personalization allows you to learn about each customer so that you can suggest relevant solutions aimed at their needs and interests like What is their budget? What hotel brand do they prefer? Are they flexible with their dates? etc.By doing just a bit more than your competitors, you are sure to stand ahead of all the other online travel businesses and guarantee that you have a continuous flow of travelers for quite a long time to come.By evading these 6 mistakes, you are on your way to establishing an independent travel business.

Blessings Of Modern Telecommunication Industry To Businesses

Telecom industry has come a long way since its humble inception and now it is able to serve users all across the world with some great communication services. Individuals and businesses are greatly facilitated in carrying daily activities as well as running businesses with the help of these varied internet services including Metro Ethernet, DSL Satellite.Major metropolises of the world mostly rely on Fast Ethernet and upgrade to Gigabit Ethernet. Ethernet Internet is fast and efficient. It can connect to offices and also provide internal online services. These internet services are provided by Ethernet over Fiber, using optic fiber lines and Ethernet over Copper, using twisted copper wire technologies.DSL and Satellite Internet services can help businesses looking for cheaper online options. They can also connect regional offices and provide VOIP (voice over IP phone) services. This will save a company lot of money by putting their phone service on the Internet, because it is easier to maintain a service like this.Businesses looking for exclusive services like to choose from options like T1 Line, T3 Line and Point to Point Lines. These lines are used for transporting phone and regular data. There is increased security and speed because the lines are not shared.VPN and VPLS private networks can be provided to cities having handsome populations in adjacent remote areas. These private networks can connect businesses with offices in remote areas. Businesses can save money on bandwidth fees by having their own networks. Security is also increased as they do not have to share connections. More data can be transferred at a faster speed. This service is ideal for larger companies like banks that need more security and transfer a great deal of data.There are businesses that prefer Metro Ethernet. This service is ideal for cities as it can connect a substantial number of offices to the Internet and also connect companies to their nearby locations. Larger companies can upgrade to MPLS, as they will get faster and more reliable service.All these services are appropriate for various industries and businesses. The ones that are chosen by customers will be dictated by their needs. Ethernet is available for those needing high-speed Internet access and cheaper forms of online services are available to those who are on a tight budget.Whether they are a start-up businesses on a small budget or giant companies needing multiple telecommunication services; there are plenty of business options, thanks to rapidly evolving telecom industry.