As you consider what institution you’ll trust to hold your business’s precious cash, there are many considerations beyond whether or not your deposit account is federally insured. Banks have long sought to staff their business-facing teams with local area experts who can provide a consultative approach to financial success, a strategy known as “Relationship Banking.” Relationship bankers know what the bank offers in terms of tools, financing and other solutions inside and out, but how well do they (or can they) know your business?

What Are the Benefits of Traditional Relationship Banking?

Keep in mind that while banks have a lot of data about your business in the form of individual transactions, accounting and better yet, cash flow management analytics are what really tell the story of where your business is and where it is going. Until recently, access to the data in an actionable format was challenging, but with the advent of integrated cash flow management tools, you can have your cake and eat it, too. Forward-thinking banks are adopting business platforms that equip your business with largely automated accounting and up-to-date cash flow projections. These tools make it easier for you to analyze obstacles in your way but also the impact of financing a great opportunity. While in the past, you would have had to have consolidated accounts receivable, accounts payable, payroll and other data into a spreadsheet paired with your cash balances, now these projections are done automatically and in real-time. Moreover, when you need assistance with financing from a best-in-class bank, your relationship banker can have a discussion with you based on your cash flow and help you decide on the best course of action based on great data, but also on their experience working in your local market and understanding its economic drivers and opportunities.

How Can You Tell if a Bank is Ready to Provide this Quality of Service?

One indicator might be membership in the FINSYNC Network. Your business dashboard syncs with FINSYNC’s banker-facing Lender Portal when you opt-in to share your data as you seek financing. Your banker can quickly analyze your cash flow and how you qualify for various options. Banks are increasingly recognizing the importance of access to and a voice in the development of next generation tools to support their business clients: Responding to our client’s needs as quickly and effectively as possible is a priority for Lamar National Bank. We were able to accomplish this by becoming a Charter Member of the FINSYNC Network and leveraging technology solutions that help our clients operate more efficiently and at a lower cost. Empowering our clients to spend time on the things that matter most to them creates healthy and profitable businesses. In return, this is greatly beneficial for Lamar National Bank’s growth and mission. - Greg Wilson, CEO of Lamar National Bank Indeed FINSYNC has formed a cooperative with community banks who seek to share what they are seeing in your market with a view to providing innovative tools to help your business be more efficient and successful. Banks across the country are joining to take the relationships they have formed with businesses like yours to the next level. Have you found a best-in-class relationship banker? Maybe you should.

Watch the Video:

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Invoice Financing, also known as factoring, is a financial tool that offers businesses the ability to collect most of an invoice by receiving an advance on an outstanding invoice, and then paying the factoring provider a small percentage of the invoice when their customer pays the full amount of the invoice. Invoice Financing service providers typically charge a few percentage points for the service. The process of financing an invoice typically involves a good amount of paperwork; however, FINSYNC has created a 3-click method to remove all paperwork and receive a factoring decision and funding quickly.

What Is Invoice Financing?

This article from BlueVine about how to choose a factoring provider offers up a simple explanation of what factoring actually is.

The Easiest Invoice Financing (Factoring) Process You’ll Ever Use 1

How Does Invoice Financing Work?

The basics of invoice financing are simple: a business wants or needs cash sooner than its customer’s payment terms (net30, net45, net60, net90, etc.), so the business “sells” that invoice payment to an invoice financing company for 97% of the value of the invoice at full payment. For example, if you invoiced BigCorp, Inc., for $10,000, but their payment terms are net60, you could ‘sell’ that invoice to an invoice financing company for 97% of that invoice amount, or $9,700. You get a large portion of your payment in 1-3 business days, so you have cash immediately, and the invoice financing company earns $300 on that advance to you when your customer pays the $10,000. 

Why Is Factoring So Paperwork Heavy?

The simple answer to that is that the invoice financing company is taking a lot of risk by paying your business in advance on the promise that your customer will pay their invoice on time. It doesn’t have to be that way, but invoice financing does require some back and forth. Using the example above, you would need to provide the invoice financing company with your invoice to your customer, proof that your customer has accepted and agreed to pay the invoice, and proof that you delivered the customer’s order, so that the invoice financing company can assess the risk of that transaction. Because every company’s invoicing, payable, and receivable systems are unique, each transaction is essentially manual, unless there is an existing relationship with the invoice financing company and your customer is a well-known, trustworthy customer who always pays their invoices on time. When an individual invoice is being financed, that transaction is unique, and the invoice financing company is offering the business an advance payment for that one invoice. Paperwork, time, and human interaction are required.

Paperwork Heavy, Until Now

FINSYNC customers enjoy a very simple process for invoice financing. Drag and drop your invoice onto the payment request screen, and click “Collect”. That’s it. Your financial institution now has everything they need to make a decision on financing that invoice. The very short video below demonstrates the entire process in just a few seconds.
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According to a recent study by JP Morgan, the vast majority (88%) of businesses in the US have fewer than 20 employees, and nearly 40 percent of all companies have under $100k in annual revenue. So, if you think your small business is really small, turns out you’re right in the middle of the pack! So how do these businesses get their financing? There are three main avenues of financing for small businesses: debt financing, investment financing, and grants. We’ll explore all three here, but we want to focus on grants, since this method of raising capital for a business is not as well known as debt or investor financing.

Debt Financing for Small Business

Perhaps the clearest, though not the easiest, option to get the capital required for a small business is to go to your local bank and borrow it. Sounds easy, but it is much more complicated than that. Here are some things you must do and consider in order to get a business loan from a bank — any bank.
  • Do you have a relationship (existing accounts) with the bank already?
  • How is your credit score?
  • Have you created a complete, professional business plan?
  • Do you have financial projections for your business for at least 3, perhaps even 5 years?
  • How much cash will you personally be able to invest in the business?
  • Will your business support both the payback of the loan and your personal income?
These are just a few of the questions you’ll need to have answered before you walk into a bank seeking a loan to fund your business. Generally, banks are financially very conservative, meaning they are not known for taking big risks. According to the SBA, about 20% of small businesses fail in their first year, and about 50% of small businesses fail by their 5th year. With those statistics in mind, a bank will need to see evidence that (a) your business will be among the 30% that succeed beyond 5 years, and (b) even if it doesn’t, that you’ll pay back the loan.

Investor Financing for Small Business

Investors are known for taking more risks than banks; however, investors still want their money back, and with a high rate of return on their investment. That means that, not only should you be prepared to demonstrate everything you needed to demonstrate for a bank loan, but also that you’ll be able to deliver to your investors their desired rate of return. That return usually comes in some sort of “exit” event, meaning that you sell your business or take the business public. An IPO is not usually an option for a small business, though being acquired can be, if the business is in a market that is consolidating. The more important part of your effort to raise capital from investors will be your relationship with them. In a small business or startup investment, the investors are usually investing in the entrepreneur. That’s you. If they know you, your history, your competence and capabilities, then their confidence will already be high before they even see your business plan. Before you ask for investment dollars, make sure you build relationships with the investors.

Small Business Grants

Finally, small businesses can apply for grants to capitalize their operations. We covered the basics of loans and investor financing because there are many similarities to grants; however, there are a lot of differences, too. First, what’s similar among loans, investments, and grants?
  • You’ll need a solid, professional business plan
  • There will be a lengthy application process
  • A relationship with the granting organization will help a lot
  • There will be expectations for the results of the money from the granting organization
Those are the big similarities. Some of the differences include:
  • You don’t have to pay back a grant
  • The granting organization does not take an ownership interest in your business
  • There is no interest nor expected return on investment for a grant
These differences make it seem like a grant is “free money”, but do not assume that’s so. There are entire seminars on how to apply for and earn grant money. But, believe it or not, applying for a grant may actually be the easier part of the process. What’s the hardest part of getting a grant for your small business? Finding the right grant.

Government Grants vs. Private Grants

A quick search for “Small business grants” brings up the SBA’s grants page, which provides a solid introduction to exactly what the US Government is currently providing grants to accomplish. Add your state name in front of that search, and you’ll get more specific, local information about how to apply for grants in your community. Searching for Private small business grants generally leads you to organizations like Clark Howard or NerdWallet, which provide a wealth of information on all things financial. There’s no such thing as “free money”. At the very least, you will have to put in hours applying for a grant, which includes detailed business plans, forecasts, and other documentation. However, knowing that you have (at least) three options to raise capital for your small business operation can open your eyes to many more possibilities.
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