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Factoring: A Commercial Financing Alternative to Venture Capital

Written by: Tracy Eden

Article Overview: In today's difficult credit environment, companies are turning over every stone and looking in every nook and cranny in their efforts to obtain the commercial financing they need to grow and prosper. Many owners think that venture capital is going to be the solution to their financing problems, but VC investors are very cautious even in the best of times, and especially so today. In the current credit environment, many companies are finding that factoring services are often a better and cheaper way to obtain commercial financing than venture capital.

Factoring: A Commercial Financing Alternative to Venture Capital

In today's difficult credit environment, companies are turning over every stone and looking in every nook and cranny in their efforts to obtain the commercial financing they need to grow and prosper. Skip Green sees it first-hand. The founder and president of Alden Green, Associates in Oakville, Ontario, has been helping companies obtain commercial financing for nearly two decades. The primary financing tools Green recommends are venture capital, private or angel financing, government guaranteed loans and grants—and factoring services.

Why VC Is a Tough Game

"Business owners often have a preconceived idea that venture capital is going to be the solution to their financing problems, but VC is a tough game," says Green. "Investors are very cautious even in the best of times, and especially so today. They want everything on a silver platter before they're willing to part with their money."

Green doesn't hesitate to recommend factoring services to companies when the circumstances warrant it. "Sometimes there's a certain resistance when I bring up factoring, but the reality is that factoring services are often a better and cheaper way to obtain financing than venture capital. When business owners see this reality, I encourage them to give some more thought to factoring."

Green left the banking world in 1992 to strike out on his own in helping companies raise commercial financing. "Banks have very specific criteria for who they can lend money to and it's hard for them to help companies that don't fit this mold," he says. "I felt like I was leaving money on the table as a banker."

He aligned himself with private investors who were looking for good growth opportunities and started playing matchmaker between them and companies seeking commercial financing. In 2004, he was talking with the owner of a wireless telecommunications firm headquartered in New York that needed start-up funding and quickly realized that they might be an excellent candidate for factoring services.

Unique Financing Challenges

The owner explains the unique financing challenges his company faced during its early years: "We work mostly on a project basis so we have to ramp up a large number of project managers, quality inspectors, field technicians and other employees very quickly. In effect, we build an army and then move it from city to city until a new wireless network is built."

With potentially hundreds of job sites and thousands of employees, the company faced huge challenges in financing its operations in the beginning. "We reached a critical mass when accounts receivable were very high but aging and we still needed to make payroll." He says the firm's employees are its greatest expense, but also its greatest strength.

"The technician turning a wrench on the front line is our salesperson," he adds. "Our people are our product and they need to be paid confidently, and factoring services enable us to do this. With factoring, we always have capital available to continue to grow and prosper."

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Article Tags: commercial financing, factoring, factoring services, venture capital
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