There will come a time when your company needs to acquire money in order to operate but you don't need to submit an application for a traditional loan. One way to acquire the money you need to help your business stabilize its cash flow or other needs is to consider off balance sheet financing.
Off balance sheet financing usually comes in the form of equipment leasing, partnerships, or trading goods or services. A number of companies use off balance sheet financing because it's easier to acquire form a loan and it won't have the same impact on your business credit rating as a traditional loan will.
What are the different methods for off balance sheet financing? The most common are to form a joint venture or partnership or to lease your equipment. A joint venture or partnership involves acquiring the funding from a third party. When you do this, you will offer some control in your business, which provides them with a chance to help you strengthen your business using new ideas and financing options.
Equipment leasing is perhaps one of the biggest off balance sheet financing options. With equipment leasing you can choose to lease your equipment directly through a bank or lender. You will acquire the equipment from a dealership and they will work out the total price with the lender. You must make your monthly payments on time to you're your business credit rating high and to prevent losing the lease on the equipment. Equipment leasing is a wonderful way to free up your cash flow as you will have more money available to pay for other needs instead of tying up all the money in your new equipment. Another big reason to use equipment leasing is to acquire new equipment instead of always seeking used equipment to keep your business running.
Watch out for off balance sheet financing that may dip into your cash flow and leave your business in a dangerous financial situation. One common thing small businesses do is passing on tax benefits from the business to their investors, which can cause problems because it will cut into your cash flow. If you get involved with trading, you can also tie up your cash flow as you are offering pieces of your inventory to other companies. You must have a higher cash flow rating to keep up with trading because it can leave you in a dangerous situation where you have no money to invest into your inventory.
Although there are pros and cons to off balance sheet financing, it is usually seen as a good thing because it does provide your business with a chance to acquire the funds without seeking a traditional loan. Depending upon the type of off balance sheet financing option you choose, you may need to use some of the business property and agree to a contract. Business equipment leasing is one such off balance sheet financing option that does require the use of a contract. Since you do not own the equipment, the only threat they can pose against you is to take away the equipment from your business, leaving you in a dangerous situation of not having the machinery and equipment you need to produce your goods and services.
A business that is in a bad debt situation or is on the brink of declaring bankruptcy may find off balance sheet financing to be a wonderful solution. Always check with your accountant or financial advisor to see if off balance sheet financing is a good option for your business or not. Just because it looks good on paper doesn't mean it is necessarily the right solution to keep your business running.
Corporate Credit Concepts specializes in off balance sheet financing. For more information about off balance sheet financing and how it might benefit your business, please CLICK HERE for a free phone consultation.