Sheroes of Alternative Financing
6 Female Champions of Alternative Financing Provide 6 Capital Solutions for Women Small Business Owners
Supporting women business owners (WBO) is not only the right thing to do, but also makes good business sense. WBOs are a critical part of the economy and are growing at more than double the rate of all businesses. Yet, WBOs continue to face additional barriers when accessing funding to start and run their businesses. Women are less likely to seek financing for their businesses and tend to ask for less capital than men. When they apply for loans, WBOs are approved at lower rates than their male counterparts and oftentimes, receive smaller loan amounts, shorter loan terms, and higher interest rates. Despite these headwinds, women founded businesses deliver more than two times the revenue per dollar invested than those founded by men.
Every WBO should understand her options so that she is empowered to secure financing that best fits her business’ needs. On the heels of Women’s Small Business Month (October) and to celebrate Women’s Entrepreneurship Day today (November 19), these six “Sheroes” in alternative financing share a range of capital solutions in this three-part series. Here is Part I.
When You Need Fast Capital to Finance Opportunistic Growth (Merchant Cash Advances)
Merchant Cash Advances (MCA) are a form of factoring (a lump sum payment in exchange for a portion of future receivables) that provide immediate, unsecured capital with no full personal guarantees. An MCA is not a regulated loan product and is subordinated to both traditional and alternative funders. MCAs can help businesses take advantage of a business opportunity (e.g., a manufacturer with an opportunity to jump on a new facility to receive immediate tax benefits); have daily revenue streams (e.g., restaurants); and/ or may be listed on the prohibited lists of traditional financers (e.g., salons or construction firms).
MCAs can be a lifeline for new business by providing fast capital (even intra-day) to finance opportunistic growth without interfering with a company’s existing debt obligations. For businesses with strong cash flows, MCAs can be a short-term bridge to longer-term traditional financing. For businesses that need to consolidate debt or await approval from another specialty finance process, MCAs can be a viable option.
“Who else offers up to $500,000 in uncollateralized financing in 24 to 48 hours? If speed and availability are critical, an MCA can be the solution,” said Christine Chang, CEO of 6th Avenue Capital, Llc, a US small to mid-sized business short-term bridge financier. “MCAs are designed for underserved businesses, including women-owned, to unlock cash for immediate business opportunities. Take this female-owned and operated new e-commerce company in Pennsylvania: the owner needed to quickly stock up for the holidays. With limited credit history, but ongoing revenue from her eBay business, 6th Avenue Capital provided $90,000 in a couple of days that she will repay from a percent of her daily sales over the course of eight months.”
When You Can Sell Your Invoices to Receive Immediate Cash (Accounts Receivables Financing or “Factoring”)
Accounts receivable financing benefits new businesses since there’s no length of time in business requirements and no financials or tax returns needed to qualify. It’s also a form of financing for businesses that sell to credit worthy customers. A company can sell its invoices to receive an immediate cash advance. Pricing is a discount of the invoice which includes the financing, credit protection on accounts sold, and back office service.
Accounts receivable financing provides entrepreneurs a way to access cash when equity is difficult to obtain. It’s also another way to generate liquidity without diluting equity. By utilizing this type of financing, women can grow their businesses quickly and then seek equity when they have greater sales volume in order to obtain a better valuation for their business.
“I often describe our financing as an ATM for invoices,” said Rachel Hersh, Director of Sales, North America of Prestige Capital, a commercial finance company that specializes in factoring for early-stage and mid-size businesses. “Take this celebrity who started a low calorie cocktail. She partnered with a spirits company to help develop her brand. With this partnership, her company was able to generate significant sales, but her liquidity tightened as there was a gap between client and supplier payments. We were able to factor her invoices so that she could pay her supplier in a timely manner and ultimately, expand her business rapidly.”
Thank you for reading Part I of our three-part series. Part II will be posted in two weeks (Tuesday, December 3, 2019).