When it comes to securing financing for a small business, it may seem like there are many options out there, until you examine them closely. Many small financing opportunities are a great deal for the lender, but not for the small business. There are various programs that may appear to offer financing, but there are strings attached that make these programs a bad choice.

One method used is to offer small business financing that involves credit cards and limits. The lender offers your small business a credit card with a specific credit limit that can be used to make purchases. This option is not ideal for a few reasons. First of all credit card interest s generally much higher than a line of credit or loan, so your business can end up paying huge interest charges. Credit cards can not meet many of your small business needs, because salaries for workers, more space or a new building, and even equipment and supplies may not be purchased with these credit cards. This financing method benefits the credit card lender, because they receive high interest for the financing, and the small business is stuck paying exorbitant interest rates for credit that can only be used for certain things, many of which do not include helping the business grow and expand.

Another common small business financing options is to use a program that offers vendor credit. This is another common program available, and it is usually not that helpful for most small business owners. Vendor credit is great if the small business needs something from a specific vendor, but this credit is not versatile and can not help potential growth or expansion needs. This financing option can not help the business meet expenses, or make purchases anywhere but through the vendor offering credit. This financing option has a very limited scope, and is usually not very beneficial to a small business in these tough financial times.

The third financing option that many small business owners use, which may have not be very helpful, is to use financing programs that offer a low cash line of credit. These programs do offer cash financing options, but in very low amounts. For a small business, this may be as effective as not getting financing, because the amount may not be enough to keep the business going.

Instead of using traditional financing programs, there is a unique new small business financing programming option available. This program requires minimal documentation, offers cash financing anywhere from one hundred thousand dollars to one million dollars for small businesses, and requires no credit check, financial business documents, or tax returns. This financing program can help your business stay open without all the hassles and documentation that other financing options require, and you get the financing your small business needs in cash, which is how it can do the most good. This option is far better than the other choices, and can help you keep your small business profitable and growing instead of becoming stagnant and closing.

Recent figures from the Asset Based Finance Association report that as at September 2009, just 42,983 UK businesses use invoice finance provided via their membership. This represents just 0.73% of the total number of UK businesses currently listed in Dun & Bradstreet’s Marketplace of UK Businesses Database.

In order to try and find out the reasons for this low take up of invoice financing, we commissioned a piece of research that involved telephone interviews with 100 SMEs (Small & Medium Sized Businesses) to better understand their attitudes to invoice finance.

We asked those businesses:

“Why do you think that so few businesses in the UK use invoice finance?”

Research Results

The results were as follows:

41% said due to cost.

31% said that it was not promoted enough and businesses hadn’t heard of it.

18% said it was easier to use overdrafts or loans.

10% said it was due to the bad reputation they associated with using the products.

Those are interesting answers as they demonstrate how poorly promoted these products have been, and how widespread misunderstandings about these products are.

Analysis of Those Results

Taking each response in order, there are some key points that businesses seem to have misunderstood.

41% – Cost

We recently constructed and published a factoring savings calculator that demonstrated how a business could use factoring (a form of invoice finance) and achieve savings that would more than offset any fees incurred and could create a net cost reduction to the business. These savings are made possible through using the outsourced credit control function that comes with factoring and by seeking supplier discounts for cash payments made possible by the cash released from factoring.

31% Not Promoted Enough / Hadn’t Heard Of It

This lack of promotion of these flexible working capital products, by the invoice finance industry, is clearly something that is contributing to the low take up of these products and the lack of understanding about how these facilities work.

18% Easier To Use Overdraft Or Loans

There are several points to consider here.

Firstly, the amount of work required of a client to run some invoice finance facilities is absolutely minimal. There are products on the market that have eradicated the need for reconciliations and technological developments mean that invoices can often by uploaded electronically, and automatically, straight from the client’s sales ledger package. The client can even choose to have cash transferred to their account as it becomes available so they don’t even have to request it.

Even if we assumed that overdrafts were easier to use, there are a number of advantages of invoice finance over overdrafts and loans:

* Overdrafts and loans do not grow in line with growth in business turnover whereas invoice finance does.

* The level of funding released by invoice finance is likely to exceed what can be raised through overdrafts and loans.

* Overdrafts and loans often require a net worth in the business and a profitable trading history whereas invoice finance can be available to loss making businesses even thought they have a negative net worth.

10% Bad Reputation

A small number of respondents felt that using invoice finance could be bad for their reputation if other businesses knew about it. I would argue it could also be good for their reputation, as their cash flow will improve, but taking their concerns on board there are facilities available that are completely confidential. The client’s customers will not be aware that they are using it and this overcomes any concerns they may have.

Summary

So in summary, there appears to have been little promotion of invoice finance in the UK and hence little knowledge of invoice finance is evident amongst UK businesses. This together with a great deal of misunderstanding about the facilities that are available under the banner of invoice finance is probably what is currently causing the low level of take up of these flexible forms of working capital finance.

Financing film tax refunds on Canadian productions is currently an integral part of the overall financing for projects in film, television, and animation in Canada. Those in the know are aware that typically a valid tax credit can be financing almost immediately after production has been completed.

An even more little know fact, (and we are surprised at the number of people that don’t know this ) is that if you tax credit is certifiable and you are somewhat experienced in the industry your tax credit can actually be financing during your production, bringing much needed cash flow and working capital to your project.

When we meet with clients we are not of course surprised to hear that a large part of their total project involvement in the 3 key areas (film, TV, and digital animation) is spent on sourcing financing for their project. While the overall financing environment has improved considerably in 2010 (and boy has those great government tax credit increases helped) it is still a challenge for most productions to cobble together financing for the entire project.

There are, of course, a number of options and strategies available to owners of any particular production. Our focus here in our information is primarily the monetizing of the increased and generous tax credits that come in the form on non repayable cheques from the government. Your ability to monetize, (we can say ‘cash flow ‘) those credits is a key part of the industry today.

Tax credit financing is usually done in conjunction with the other forms of financing in our three key focus areas. Those other types of financing of course include equity, pre-sales, etc.

In order to finance certain key elements must exist. The one key area to focus on is certification and eligibility, with criteria being a bit different, but essentially the same, depending on which proving your production is domiciled in. Ontario and B.C. seem to garner most of the action…

Owners that surround themselves with solid accounting and legal partners and who have a clean special purpose entity set up are 90% of the way there! What we are really saying is that if your production is eligible, and you have documented your bidets and costs carefully, and they are cleanly with a separate legal entity (preferable) you are safe to assume you can have your tax credit financed.

We strongly recommend that you work with someone who is at trusted, experienced and credible advisor in this area who will work with you to maximize the total dollars that you can derive out of your tax credit. Naturally a clean tax credit represents 100% of the dollars due to your production. To err on the side of safety and conservatism tax credits are generally financed at 50-80% loan to value. (There are exceptions on the upside and downside as always!). No payments are made on your financing, and final financing costs come out of the final receipt of funds form the government, with any additional balances left over due to your production of course.

The ability to finance your production creatively, with the assistance of the monetization of your tax credit is a powerful strategy not available in all parts of the world, due in most part of course to the generous non repayable credits the Canadian government as deemed for the industry. Utilize tax credit financing to improve the overall success of your projects.