Start-Up Credit Crunch
Posted on June 24, 2007 in | Comments (0)
Managing your credit and your cashflow in a small start-up is sometimes difficult. If you are running short of cash cash advance instead of allowing yourself to get a late fee.
When self-financing it usually makes sense to lay the groundwork for your startup WHILE working at your current job. Let's face it - most startups fail and undercapitalization is the primary cause. Whatever your business model it makes more sense to weigh your options. Let's say you finance your start-up with a combination of credit cards and the three FFFs. It's almost certainly the case that the interest that you will pay with a cash advance is less than the interest plus penalty you will pay on your credit cards IF you miss a payment.
Cash advances like receivables factoring should only be used as a last resort in terms a start-up's cash flow. Receivable factoring is the selling of accounts receivable or invoices in order to secure immediate cash. A factor company purchases your receivables by giving you an advance payment up front. This advanced payment is usually 70 - 90% of the total value of the receivables. After charging a small fee (2% and up) the remaining balance is released upon full receipt of payment for all the receivables/invoices.
For smaller startups cash advances will work while you are working to get your startup off the ground. They usually require a pay stub so you can only use them in the very earliest stages of your start-up while you are working at your current W-2 job. Yet they can help you work through those tough scrapes in your initial days.
