Every day, start ups and growing companies face a common cash-flow conundrum, limited credit availability. Once a bank establishes a line of credit based on a company’s financials it is difficult to increase that line. A young emerging company experiencing a spike in business would require a quick cash infusion which in all likelihood would exceed their current borrowing capacity limits established by the bank. Very often traditional lenders are faced with regulatory constraints and internal underwriting guidelines resulting in an inability to meet borrowers increased capital needs.
Case study:
A marketing company doing $1 million in annual sales had a $100,000 line of credit from the bank. However, new clients’ orders increased sales to almost $3 million. The bank line was clearly not sufficient to provide the needed financial fuel for the increased costs associated with this boost in sales. Xynergy Capital’s factoring program provided a sales based financial solution immediately supporting the increase in sales. This flexible program now sustains their increased monthly cash need of almost $500,000—five times larger than what the bank could provide.
Banks regularly refer companies like this to factors. Instead of looking at past performance, a factoring solution like Xynergy’s leverages a company’s accounts receivable to establish a flexible cash flow infusion that grows with sales. This helps companies accept new contracts with confidence, access crucial funds to fulfill these orders, and maintain a healthy relationship with suppliers while obtaining favorable pricing with current vendors.
A smart way back to the bank
These same clients can continue the relationship with their bank for deposits, payroll, investments etc… And ultimately with much stronger financials, they can become bankable borrowers. When growth levels off and its line of credit need becomes more predictable, the company will be able to return to the bank for a more traditional line of credit.
Bankers recognizing factoring for periods of incremental growth are taking a forward-looking proposition. Factoring is a flexible, empowering tool that can ultimately return a healthier, more profitable company back to the bank.
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