Niche business loans can help meet some of the short-term needs of businesses. Cash flow projections and how/when revenues are realized are critical in the lending institutions’ evaluation and assessment of a business for these loans. While there are certain industries that are categorized as high-risk, i.e. medical offices with high accounts receivable, and restaurants, bars, and nightclubs that have little in the way of collateral and construction with its seasonality, these types of business have other options they can explore.
“Factoring” could be a viable option for these types of businesses. Factoring is the process of selling accounts receivable at a discounted rate, improving cash flow, relieving the business of collections, and creating a growth environment. Two critical considerations before factoring are TMV (Time Value of Money) and the ROI (Return on Investment). Even though the dollar today is more valuable than in the future, consider what that value may be and what value it will return if you sell the receivable. Financing can be leveraged to help gain the most beneficial returns.
Still, factoring does have its limitations, such as if no credit history is reported, and the percentage is typically based on the receivables. Some favorable aspects of this type of financing are: credit score is not an issue, no debt is assumed and, often, these transactions can help bridge the gap while credit is being established or while waiting for a credit line increase.
While banks and lending institutions enjoy being recognized in economic development projects, other institutions contribute directly to this growth through private niche programs. One such program is the USDA’s “RURAL ECONOMIC DEVELOPMENT LOAN AND GRANT (REDLG). This program provides funding to rural projects through local utility organizations [via] zero interest loans. They pass [these savings] through to local businesses to establish revolving loan funds for projects that will create or retain rural jobs ” (USDA, 2014).
There are several other valuable loan and grant programs available as well, such as one Virginia introduced. Their “Small Business Financing Authority’s Economic Development Loan Fund is designed to fill the financing gap between private debt financing and private equity. Funds are provided to create economic benefit through increased revenues and the creation of new jobs and the retention of “at risk” jobs in Virginia” (Virginia.gov).
These are a small sampling of special niche economics loans that are available. A little research and time investment will benefit you and help you uncover the right program for your type of business.