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The risk of starting up a small business, these days, is no joke. Majority of little business ventures faced sudden doom because of the threat of competition. With so much ideas and capital on different minds and hands, respectively, monopolistic competition has intensified to the extreme.

Therefore, it is imperative to choose the right financing companies for small business. It’s because funding is of utmost importance. A slight delay in a business’ financial activities (e.g., conversion of accounts receivable, payment of employees and suppliers, etc.) can cost the business tens or hundreds of dollars, or impaired goodwill.

Not all business startups are self-funded. A huge chunk of these ventures relied on financial products such as bank loans to fuel their operations. It has to be noted that financial companies are not limited to banks. Credit unions, insurance companies, stock brokerages, investment funds, invoice factoring companies and others are other prominent examples of a financial service companies.

For the purpose of this discussion, we’ll focus on financial companies related to raising immediate capital for small businesses. In other words, financing companies for small business.

What are the common financial products by financial companies related to business?

Asset-Based Loans

These are borrowings granted by a financing company secured by business assets. Business owners pledge their business assets like accounts receivable, property plant and equipment (PPE), and inventory, so that in the case of default, the financing company can apply it to their debt.


More known as invoice factoring, a manufacturer who sells on multiple customers normally on account (30-90 days) can opt to sell and assign his receivables to a factor (financing company), in exchange of getting a cash advance on the 80% amount of such invoices. The factor, upon receipt of the total payment from customers, remits the remaining 20%, net of factoring fees. Factoring aids businesses that need immediate cash replenishment including manufacturers, construction firms, retailers, etc.

Installment Loans

This applies to businesses that sell products on installment plans, like cars, gadgets, or huge appliances. They utilize contracts from financing companies so that they can immediately get the advanced cash payment. The risk of collection is co-borne by the business and the financing company.

Invoice Factoring

A generous credit policy may be a proven strategy to attract more business, however the downside of this strategy is that most of the earnings generated get tied up in invoices and accounts receivable. This lowers the company’s financial liquidity which means the business may not have adequate working capital to fund and invest in new growth opportunities.

Applying for a bank loan may be an option for established companies, but not for startups and small businesses. This is typically because banks across the country have been tightening their loan approval policies, making it difficult for businesses to qualify for loans.

This is where startups and small businesses can benefit from Invoice factoring. Invoice factoring provides the answer to all your urgent cash flow and working capital needs. It can be defined as a business funding or financial transaction method where a company sells its’ invoices and accounts receivable to a factor at a discounted rate for immediate cash transfers. Simply put, invoice factoring helps a company stabilize its cash flow and meet urgent working capital needs by converting earnings in outstanding invoices (that are due in either thirty (30), sixty (60) or ninety (90) days) to cash.

How do you choose the best financing company?

  1. Do your homework

This means to research different financing companies. Before you make a huge purchase or sign an employment contract, you study the company or brand involved right? The same is imperative for lenders and finance.

What services and products are they into? Are they regarded as leaders in their category? Do they have good reputation? Do they have wide range of products that can perfectly suit your business’ financing needs?

It will also help to read genuine reviews about a financing company’s small business funding online.

  1. Broaden your choices

We all have a tendency to stick on the first option we see. Because the Internet is bombarded with different financial products that almost mimic each other, we thought that “They’re all just the same.”

However, taking the time to hear (read) other offers from different competitors surely helps. This not only helps you identify which has the more favorable rates, but it also gives you the impression on what figures are “normal” in the industry, sharpening your decision-making skills.

Some questions you should have for each candidate are the following:

  • What are your term options?
  • How long can you commit to the financing?
  • What is your niche market?
  • Do you also specialize in other niches?

Answering these questions will determine if the financing company is the right fit for your business’ needs.

And if you’re struggling with some financial terms and figures (e.g., discount rate,    compounded interest, etc.), you can always bring someone who understands, a friend, family member, or acquaintance.

  1. Do additional research on their record and competitiveness

You’ll never want to deal with a financing company pretending to be a legitimate one. It’s important to make sure that it has complied with all legal and statutory requirements.

In terms of competitiveness, check if it’s listed on Inc. 500 or 5000, for instance. It’s also ideal if it’s a member of a renowned group of acclaimed companies, so you can be sure that it’ll last really long. It’s also a plus if that company is regarded in a specific industry that is within your business’ niche.

  1. Find if they have the right financial product for you

A competitive and reputable financing company is still no good if it doesn’t have the right plan for you. That’s why it’s essentially important to identify your business needs first.

Are their rates and terms forgiving? Can the funds be delivered to you on specified dates where your business needs it most?  Do they have the right small business funding solutions for you?

  1. Customer service is just as important

Are you speaking with a representative who genuinely cares for your business, or is he just shoving plans and products down your throat? You shouldn’t be treated or seen as just another profit.

What the financing company’s representative should demonstrate is willingness to learn your business. Through that, he’ll be able to give sound advices that’ll help you identify the best possible deal. He may even suggest ways on how to optimize your business operations to improve profit.

To summarize, small business funding sources can either be through loans of equity. Loans and other types of financial products can be achieved through financing companies. Though all of their offers may look and sound the same, there are still differences on which you can take advantage.

The key in choosing the right financing company is in the screening process. One should have the gut feel and adequate knowledge to spot to-good-to-be-true offers from genuine ones. If the selection process is too troublesome for you, you can always consider the advice from a dear beloved or a financial advisor. But at the end of the day, the financing companies for small business is still your call.