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Photo and book by Anne Hart

Entrepreneurs use factoring seasonally to extend credit and expand business. It's a form of credit and collection management. Instead of spending energy trying to raise more capital during peak season or increasing your temporary staff during overload peaks, the homebased entrepreneur can use the funds of a factor to promote growth.

Factoring is brought in to manage seasonal peaks. Instead of getting into debt with a term loan, factoring is used because of its non-debt structure. If your growth is stifled because of cash flow, then you can't extend credit and carry the receivable. If you can't meet a payroll because your homebased business's cash flow is too unpredictable, factoring may work for you.

By factoring (hiring a credit manager), you get predictable cash flow and primary funding. Factors qualify your accounts receivable as collateral. You're funded after satisfying your customer's requirements.     

Equipment leasing (with the option to purchase) is another hidden source of capital for the homebased entrepreneur and a tax benefit as well. 

Renting your equipment allows you to know exactly what your cost is for the term to conserve your cash. If your return on the money generated by leasing equipment exceeds the interest that you'll pay for the lease, renting provides fixed terms, rates and good tax writeoffs available with ownership for 24 to 60 months. 

If your homebased business is owned by or targets women and minorities (although anyone is invited to apply), or uses emerging technology, microlending offers loans of $5,000 to $50,000 to expand your homebased business. Microloans are designed for small homebased businesses and companies that need a small loan for fixtures, equipment, inventory, or working capital.

The advantages, on the average, are flexible terms, three year maturity, five year amortization, fixed interest rates, and low loan fees. Your business's continuous positive cash flow for at least two years of operation really is your collateral.

If your business's historical data and future projections show your ability to repay the loan--and you have good credit ratings and character, you can try microlending. For further information on microlenders, get in touch with Banker's Small Business Community Development Corporation, phone (619) 291-3594. Or check out your area's community development firms.   

Microloans are often recommended to entrepreneurs who could not qualify for conventional loans at banks.  The first question you're going to be asked is "How long have you been in business?" Banks are conservative and require a lot of collateral.

The average microloan is $27,000. If you need only $15,000, the bank will tell you it's difficult to make a profit on a $15,000 loan. Banks will steer you to use your credit cards for microloans, where you must pay the loan back at about 20% interest. Credit cards are very hard to pay off. 

Smaller manufacturing business owners may not be aware of some of the hidden markets for financing such as microloans, factoring accounts receivable, equipment leasing tax write-offs, trade financing, and export financing. Entrepreneurs generally are more familiar with state-guaranteed lending, small business specialty loans, public and private offerings, and venture capital resources disseminated by the Small Business Administration.

Most homebased business owners first learn about Small Business Administration guaranteed lending at business seminars sponsored by their local Chambers of Commerce. The Small Business Administration (SBA) still may be able to finance homebased businesses with its loan guarantee or specialty loan programs.      

Unfortunately, the SBA is cutting back its role as a lender to small business and paying more attention to regulatory reform. SBA now limits the loans it guarantees to $500,000. The number of smaller loans the SBA backs will increase in the future, paving the way for microloans. Homebased business owners should be aware of the hidden law that requires agencies to evaluate how new regulations affect smaller businesses.

The hidden market of microlending targets homebased high-tech businesses. Lenders are looking for tiny homebased businesses that focus on emerging technology. They're called "emtech" microbusinesses, and they are often preferred.

Did you assemble something technical? The microlending company will analyze your homebased business or other company to see whether you have had positive cash flow for the past two years. You can get a microloan even if you have had a bankruptcy.

Your lender is looking for a trend and pattern. The microlender also helps homebased entrepreneurs qualify for SBA or state loans. People who ask for microloans usually have been turned down many times by other programs.

If you want a microloan, then hand in only a two-page synopsis of your business plan. If you're concerned about getting into debt, then you might want to try factoring accounts receivables as another hidden market for financing.

Factoring is about selling your accounts receivables to increase your business's cash flow. Valuable credit and collection management services also are provided in factoring. It's a financial service tool used by businesses to control production by enhancing cash flow. 

Credit analyses are run on your accounts. You're funded against your receivables. The predictability of cash flow lets you stock up on inventory, meet payrolls, use trade discounts, extend credit, pay bills, and give customers credit.

A funding corporation/company can provide "a factor" (credit expert) to pre-check credit, make guarantees, and monitor collections of accounts receivable--on those accounts being serviced. The factoring expert becomes your service provider for cash flow and takes on the responsibility of collections.

In the past, factoring was used in the garment and textile business and other retail trades. Today, factoring finances homebased entrepreneurs and small businesses of many types.