The accounts receivable turnover ratio is a type of activity ratio—that is, an indicator of how efficient a company is operating— used to assess a company’s effectiveness in managing its credit policy. The accounts receivable turnover ratio also indicates how quickly credit customers pay their invoices. The accounts receivable turnover ratio is determined by dividing the net credit sales of a company by the average accounts receivable over the same time. A high accounts receivable turnover ratio is an indication that the company’s collection efforts are well managed and enforced. If the accounts receivable turnover ratio is low, the company’s credit policies may need to be tightened to maintain the receipt of revenue from credit sales. The accounts receivable ratio is useful in determining the type of credit to offer customers and which clients should be eligible for an account with your business. There is a big opportunity cost involved with providing credit to your clients. When goods or services are delivered without immediate payment, there is a threshold at which the benefit of the sale loses worth against the need for immediate cash inflows. The accounts receivable turnover ratio can help display this threshold by quantifying the success with which your business conducts its sales and collections program. The accounts receivable ratio is not a tool that reveals decisive patterns or a technique to resolve conflicts. Rather, it is an instrument to help you better understand the model that should be followed to guarantee that accounts receivable is being used to their full potential.

An alternative lender, or non-traditional lender, is a loan provider, often a short-term loan lender that is often not heavily regulated by state or federal agencies. Alternative lenders can be financial, mortgage, or online lenders. Some lenders provide lesser amounts of cash relatively quickly, while others may loan large sums that take longer to be approved. Non-traditional lenders that provide large sums of money usually require more documentation than traditional lenders. They may ask for extensive business and personal financial statements, as well as credit reports and business plans. To apply for a large alternative loan, individuals usually must meet certain requirements: have proof of employment, be employed for a certain amount of time, and have bank statements for a specified time period (usually 12 months).

The interest rates of alternative loans also depend on whether the loan is secured or unsecured. Secured loans typically have lower interest rates than unsecured non-traditional loans because they minimize the lender’s risk of loss. Non-traditional lenders will also look at an applicant’s credit score and down payment on the loan to determine the interest rate. The better the credit score and the larger the down payment, the better interest rate an individual can obtain. The time period to repay a non-traditional loan also depends on the amount of funds provided. Individuals usually opt for short-term loans because it gives them enough time to improve their credit scores and get better loans.

A high-risk small business loan is a loan extended to a business with little or poor credit. If your business has a bad credit history, or even no credit history, it’s not impossible for you to get a loan or a line of credit for your business. However, if your business does have challenged credit and is considered “high risk,” chances are good that your best lines of credit won’t necessarily come from a traditional bank loan.
  • HOW TO GET A BUSINESS LOAN WITH BAD CREDIT: When seeking a high-risk small business loan, expect to pay a very high interest rate. A lender will want to minimize their risks by charging greater interest, or perhaps ensuring a short-term agreement. Another place to look for a high-risk small business loan with bad credit is a web-based lender, which is often a microlender. You can borrow a relatively small amount of money with bad credit from one of these lenders ($5,000-$25,000) and start to improve your credit score by paying the microloan back on time. “Non-bank” providers are the ones most willing to lend to businesses with low credit scores, an arrangement sometimes called a poor credit business loan, and some will report your payments to credit bureaus.
  • NON-TRADITIONAL OR ALTERNATIVE LENDERS: Perhaps you need a high-risk small business loan because you have an unusual business idea or you’re looking to get into an industry that’s considered “high risk, high return.” For these types of businesses, you might want to look at alternative or non-traditional funding, as conventional lenders tend to shy away from anything risky.
  • RAISE YOUR CREDIT SCORE: The most important thing to remember is that rebuilding your credit score is the best way to avoid having to arrange a high-risk small business loan, and you can start building better credit anytime.
A balance sheet is a statement of the financial position of a company that reflects a single point in time. A balance sheet is prepared with other financial statements on a particular date usually calculated at the close of a financial accounting period such as a month or fiscal year. A balance sheet is required by the Security and Exchange Commission (SEC) as part of the financial reporting of public companies. The balance sheet is used to convey the responsibility of the business to stakeholders. A balance sheet reflects the accounting equation described by the relationship between your company’s assets, liabilities, and equity. Your business assets include cash, accounts receivable, inventory, real property, and intangible property. Liabilities include accounts payable, income taxes, mortgage notes, and other forms of debt. Owners’ equity includes issued stock and retained earnings – those revenues that have been reinvested as opposed to being distributed to owners. The total of all assets should equal the total of your liabilities plus owners’ equity for the same accounting period. A balance sheet is used to inform you and your stakeholders of the type and nature of assets you hold, and your obligations to your creditors and yourself. The balance sheet compliments the other financial statements (the income statement and statement of cash flows) by summarizing their details and describing how the current state of assets, liabilities and owners’ equity directly impacts those with interest in the company.

A commercial loan is provided to businesses to fund their business ventures and operations. The loan can be used, for many business-related purposes such as to purchase or lease property, stock inventory, pay overhead, perform renovations or repairs, and purchase equipment. There are diverse types of commercial loans available to meet different needs such as small business and start-up loans, equipment loans, real estate loans, and construction loans.

Business owners must often prepare a formal loan proposal before approaching a lending institution. The proposal needs to include a business plan covering at least the first five years of operations, with details about the advertising and marketing strategy, the targeted customer base, the goods or services that will be provided, and financial planning.

Commercial loan lenders also evaluate the owner’s personal and business credit history before approving an application. Startup business owners must have a good personal credit rating as that is the only way a lender can evaluate the owner’s ability to successfully manage finances.

Some commercial loans have slightly different requirements than others. A construction loan may have less rigid payment requirements, and an equipment loan can be secured by the value of the piece of the equipment. Real estate loans or mortgages can also be secured by the value of the property.


Equipment funding is capital you use to lease or buy equipment for your business. Equipment funding is available from many various sources and can be designed to fit the unique needs of your company.

You may be able to fund equipment through your company’s sales revenues. This can be an ideal way to fund an equipment lease. With a lease, property is not owned, which may be a better option for small businesses that don’t have the money to purchase and maintain equipment. Equipment can be updated through a lease program as well, helping your company maintain a workflow on par with industry standards. You might find, however, that sales revenues are not the best way to fund an equipment purchase. If cash reserves are low, and you need money to maintain your business operations, it may be better to seek a loan. The purchased equipment acts as its own collateral and is not fully owned until the loan is repaid in full. Another source for equipment funding is through alternative funding channels, such as credit card receivable funding. In this scenario, you use funding through an alternative provider to purchase or lease your equipment.

Many small business owners prefer alternative funding methods for equipment finance, because it preserves their cash reserves.


An equipment loan is capital offered to businesses that are buying new equipment or replacing current equipment. Traditional sources of equipment loans, such as banks, typically require a specific purpose and impose strict limits on usage. From alternative sources, an equipment loan may be a little more flexible regarding how it is spent. An equipment loan can offer fixed or variable rates, flexible repayment terms, variable payment frequency, and possible tax benefits. An equipment loan allows companies to retain and build equity.

Most banks and other traditional sources often write equipment loans for terms of up to seven years. There is usually a documentation fee when the loan is initiated. Equipment loans from banks will vary in terms of borrowing amounts. The amount of the loan depends on the cost of the equipment or fixed asset you’re purchasing or refinancing.

Many small business owners find alternative funding methods to be ideal for equipment loan needs. Because they are less demanding than traditional loans, alternative-funding sources can help a business owner get the equipment more quickly. In addition, with an alternative funding source, an equipment loan is not always restricted to the costs of the equipment. This means that a small business owner can include the anticipated costs for other aspects of obtaining new equipment, like training, transportation, or ongoing maintenance.

While there are certainly pros and cons to using either a traditional or an alternative source of funding for an equipment loan, there is no question that an equipment loan can certainly benefit the efforts of a small business owner.


Factoring accounts receivable is when a third-party exchanges cash for a business’s uncollected invoices. The third party (called a factor) pays a percentage of the invoice’s face value up-front, allowing the business owner to spend the money rather than wait for it. Factoring accounts receivable is a relatively straightforward process with relatively easy qualifications. It can often be arranged in days rather than weeks, increasing the flexibility and opportunity of the small business. Collecting on the invoice can be handled in many different ways depending on the needs of the business and the terms and conditions of the provider.

There is recourse factoring or non-recourse factoring. In recourse factoring, the seller buys back the account if it has not been paid in a set period of time, typically 90 days. Non-recourse factoring occurs when the factor takes the full risk on the account. This type of deal usually costs more, and the buying companies will usually only buy low-risk accounts. There is also confidential (or invoice) factoring, where the small business collects on the invoice and pays the factor.

One additional benefit of factoring accounts receivable is that it usually puts significantly less stress on the business owner’s personal assets and credit history. Since the factored accounts receivable are the collateral, even individual business owners with very low credit scores can take advantage of such a funding arrangement.

A factoring agreement details the responsibilities of both the billing company and the factor in a factoring transaction. Factoring is not just about turning some invoices over for cash. There must be an agreement made on how many invoices are to be purchased, for what length of time, how much money will be paid upfront, what the fees and rates will be, which type of invoices will be purchased, and a recourse or non-recourse clause. Factors may agree to purchase a set dollar amount of invoices, or they may agree to purchase invoices for an amount of time, typically between 3 months and a year. The factor typically reserves the right to review the billed clients’ credit records and may not agree to purchase invoices that are more than 60 or 90 days past due. Once the invoices are purchased, the factoring agreement may state that the factor is responsible for collecting the entire balance from the client through whatever means necessary, or, it may designate this responsibility to the small business owner. The factoring agreement should clearly stipulate the fees that will be deducted from each transaction as well as the percentage of the invoice to be paid up front. The factoring agreement also needs to include a recourse or non-recourse clause. A recourse clause places the burden of uncollected invoices back on the business and requires the business to pay that amount to the factor. With a non-recourse clause, the business sheds all responsibility of the invoices, and the factor assumes all risks for collection. Most experts would advise consulting an accountant and a lawyer before signing a factoring agreement.

Government grants refer to business capital offered by the government to support the efforts of a small business.

The first step in determining if your business can qualify for government grants is to research which government grants are available. Look to your industry, but be aware that many industries will not qualify for this type of funding. Government grants are usually reserved for nonprofit organizations that serve the public in a tangible, measurable way. The qualifications for nonprofit grants are stringent, likely focusing on the business type, the business owner(s), and the public that the business serves.

If you find your small business does qualify for government grants, you may want to seek some professional help to apply. There are copywriters who specialize in writing winning grants, and can be a good move to let a professional help you focus your efforts.

For businesses that qualify, government grants make a fantastic way to finance a variety of projects that help drive success.


Import and export financing is available through the Export-Import Bank of the United States and the Small Business Administration (SBA) through their joint effort: the Export Working Capital Program (EWCP). Through EWCP, exporters can get credit, insurance, and other financial products. Exporters must be qualified either directly through EWCP or indirectly through intermediary lenders, in which case EWCP can guarantee the loans.
EWCP backing can be vital to obtaining import and export financing. Not all lenders are willing to extend credit to exporters, but by securing backing on these loans, a lender becomes more willing to offer the loan. An EWCP-backed loan will be repaid up to 90% in the case of default.

To qualify for financing through EWCP, a company will have to have been in business at least a year before applying for funding. It could have been in an industry other than exporting. However, in special instances where the exporter has had prior experience in the industry, this requirement may not be necessary.

The SBA is specifically designed to help small businesses obtain funding and provide assistance to them. However, the Export-Import Bank works to help exporters with import and export financing regardless of the business’s size.


IPO stands for Initial Public Offering. The Initial Public Offering is the first time a company begins to offer stock to the public. It is also called “going public.” Normally, companies will begin offering limited stock options to their employees, close affiliates, or customers. An IPO is a chance for growth on a much larger scale. Once the company has gone public, stock can be traded to those outside the company, and the stocks enter the jurisdiction of the Securities and Exchanges Commission (SEC). An IPO can happen at any point of a company’s lifespan, but it is more common in the initial stages, when a company’s financial needs are increasing. Those who purchase stock from the company are investing in it. The IPO is a form of external financing, and depending on the industry and the company, can offer a substantial influx of cash.

An IPO can be a complicated endeavor. Investors naturally hope to receive a return on their investments. Public perception and other factors can contribute positively or negatively to the value of the stocks. If the company reports recent high earnings the stock value may increase, while poor earnings or news of bad decisions could have drastically adverse effects on stock prices, with investors selling off quickly. An additional complication of an IPO is that the investors receive a voice in the decision-making process, which can reduce the amount of control exercised by the company’s higher-ranking executives.

In most cases, to coordinate its efforts when making an IPO, a company may hire an investment bank or other firm with valuable expertise.


A joint venture, sometimes abbreviated “JV,” is an agreement between two businesses to share the profit and expenses of a common business activity. The businesses involved effectively form a partnership typically governed under a unique joint venture agreement. They also agree to share a portion of their current knowledge, assets, and other resources in effort to achieve their shared goal or goals.

A joint venture is often useful for two companies that wish to work on common efforts without the expense and complications of merging. A joint venture is not always limited two businesses. Non-profits, individuals, and government entities can also become JV partners.

A joint venture is often used to bring together two companies that are skilled in different areas. A joint venture allows two parties to cooperate and share specialties, but there are also inherent risks and liabilities to be considered. Taxation on joint ventures is regulated by federal and applicable law and their income tax is typically determined in the same way it is for partnerships.


A lien is a claim held by one party on another party’s asset or assets that is released upon fulfillment of one or more stated conditions. A lien is essentially the legal contract governing collateral. It is also sometimes a reflection of the duty of a party to compensate another for work or services performed.

A lien is very common in situations where assets are being purchased or pursued using borrowed funds. A mortgage is an example of a lien in which the property purchased is the subject of the lien. Similarly, an auto loan is an example of such a lien. These are both particular liens, meaning that the obligation to the creditor regarding the particular asset must be satisfied in order for the lien to be cleared.

Another example of a lien is that of a trade worker claiming ownership of property that was built or worked upon. When work is performed by a laborer, he or she may be entitled to hold a lien on the property until they are compensated for their labor.

Certain liens are known as express liens — in other words, liens that are created expressly. This is the case when loan contract is signed and collateral is presented as security for the loan, as is the case with a mortgage or auto loan. A legal relation may also create a lien. This is when work is performed on property and it is the duty of the recipient to compensate the laborer.


Merchant cash refers to the money (or capital) that is controlled, borrowed, or earned by a small business owner. The terms merchant cash and merchant capital are commonly used, however, when a business owner is looking for funding.

Merchant cash can be obtained in a variety of ways, from the traditional (such as bank loans) to the alternative (such as angel investors). No matter how the merchant cash is accessed, it’s most often used to invest back into the business.

If your own small business is seeking merchant cash, it’s advisable to explore all your options. For instance, you could seek a bank loan, an equipment lease, a Merchant Cash Advance, or a line of credit for the same purposes. They will all have different terms and conditions, but by understanding your options, you can make a better, more balanced decision.


A Merchant Cash Advance, sometimes also known as credit card receivable funding, is an alternative method of funding a small business. Based on credit card sales, a Merchant Cash Advance is usually a quick, efficient, and easy-to-manage form of small business funding. The main criterion for receiving a Merchant Cash Advance is to have a predictable credit card sales volume. Most providers will offer you slightly different terms, but it mostly depends on your proof of steady credit card sales volume. The provider, in most cases, will purchase a fixed dollar amount of your future credit card receipts at a discount. They pay your business up to $150,000, and then receive a fixed percentage of your future credit card sales, if and to the extent such sales occur, until they have received the dollar amount of future credit card sales they purchased.

There can be many benefits in finding the right Merchant Cash Advance provider. This is typically a very fast way to get money for your business, with completion of the application process in anywhere from 3-14 days. With most providers, you can spend the proceeds from a Merchant Cash Advance on whatever is best for your business. While it may carry a slightly higher cost than other options, it can create opportunity for a business that struggles with traditional providers.


Off balance sheet financing generally refers to financing from activities not on a corporate balance sheet. This could include operating leases, joint ventures, and research and development partnerships. Businesses will keep these larger capital expenditures off the balance sheet by classifying them in a way that keeps debt-to-equity and leverage ratios low. This is especially true if negative debt covenants would be broken by including the large expenditures on the balance sheet.

Off balance sheet financing items (most commonly operating leases) must follow Generally Accepted Accounting Principles (GAAP), in determining whether a lease should be expensed or capitalized. If expensed, the leased asset remains on the lessor’s balance sheet, and the lessee only expenses the actual rental charge of the asset.

Many US corporations have structured subsidiaries and partnerships to prevent billions of dollars in debt from appearing on their balance sheets. Various banks arrange many of these structures and use them as well.
Off balance sheet financing became popularly known during Enron Corporation’s bankruptcy travails in 2002. Many of the company’s financial problems were a result of questionable accounting practices in relation to off balance sheet entities. Since Enron’s failure, this type of financing is becoming more scrutinized by government entities.


A payroll loan is a cash advance that is given to a borrower based on their employment status and income. A payroll loan is also known as a payday loan because the amount of the loan is typically scheduled for repayment upon getting paid by an employer.

A payroll loan may be obtained easily with proof of income and identification. There are many payroll loan facilities that can process a request and provide cash within just few minutes or hours. However, certain criteria must be met to qualify for a payroll loan. Most payday loan lenders require the borrower to provide a checking or savings account as collateral and will extract the amount due from the account directly. Fees may apply in situations where a borrower does not have employee direct deposit because there is greater risk to the lender in that they can’t recoup the loan. This also generates a greater responsibility to the borrower, as they must ensure payments are made in full and on time. If a default occurs, the financial penalties from a payroll loan may be severe and can be very damaging to a person’s credit score.

A payroll loan is often used to subsidize an immediate financial need. Some examples of this may include emergency travel, repair to an essential automobile or purchase of inventory or commodities for resale. A payroll loan is poorly used as a supplemental means of income as it is a short-term solution with relatively high rates and fees. Most experts do not advise the use of payroll loans, simply because they are expensive, risky, and many providers have been found to be rather unscrupulous.

Restaurant financing refers to money arranged that can be used to open a restaurant, expand a current establishment, or buy a franchise. Restaurant financing can help cover equipment purchases, inventory, payroll, rent, utilities, and other operating expenses. Banks and other lending institutions are the traditional sources for restaurant financing, though there are many ways to get business capital. Additional restaurant financing options might include:
  • Loans from the US Small Business Administration (SBA) may be an option. The most popular is the 7(a) Loan Guaranty Program.
  • Investors can be challenging, but can offer access to the necessary financial resources. Family, friends, accountants, and attorneys can often help bring in potential investors.
  • If you’re purchasing a business from someone else, consider seller financing. In this scenario, the seller finances the sale. This can be particularly helpful if you’re unable to meet a bank’s requirements.
  • Partnerships help owners to pool resources together, which can provide a solid source of funding. In restaurant financing, partnerships can help ease the burden of the individual by sharing it among the group.
  • Personal loans are sometimes viable options. For example, a home-equity loan can provide sole funding or supplemental funding. Do beware of putting your personal assets at risk for the good of your business—you may lose more than you bargained for.
  • Venture capital firms invest significant funds in companies and can be particularly interested in businesses promising expansion opportunities.
  • There can be alternative funding options, other than loans, available to some restaurants, such as factoring or credit card receivable funding.
Most experts agree, when considering your restaurant finance options, a combination of sources can help you get the best possible fit to your needs.

A small business loan can be secured through a variety of means. It may be obtained through a traditional financial institution such as a bank. A small business loan may also be found through an organization that specifically caters to the financial needs of small and growing companies. Perhaps the most sought-after source for a small business loan is the U.S. Small Business Administration (SBA).

The SBA provides information about how to qualify and receive a small business loan. It also endorses many institutions that may meet the specific needs of your company. The organizations found through the SBA are required to meet stringent guidelines to gain endorsement. Therefore, using them for your small business funding needs is more secure than many other, less-regulated options. A small business loan is extremely helpful to entrepreneurs and fledgling companies. Many different small business loan programs can be found that offer flexible interest rates and payment schedule options. Some restrictions will require that the borrower be disciplined and diligent with the application of the loan. However, the hard work that goes into managing a small business loan is well worth the benefit of a strengthened credit profile and the opportunity to sustain and expand your company. With a small business loan, your company can challenge and enter the marketplace with the confidence of being supported by a secure financial portfolio.


As the name suggests, a small business startup loan is money used to begin a new business. While the traditional place to go for one of these loans is to a bank or other financial institution, there are other options you can consider for a small business startup loan.

The following are three common methods of start-up funding that won’t necessarily involve banks:

  • Friends and Family: Friends and family members are one of the most common places to get a small business startup loan, but using them can have complications. Your personal relationships may be at risk if there is a problem on either side of the deal. If you use friends or family for a small business start-up loan, you need to handle it like a business transaction and put everything in writing. Handled properly, this can be a very simple way to get started.
  • Venture Capital: Venture capital is money offered by individuals or groups to be invested in a business. There are venture capital firms and some government entities that specialize in providing venture capital.
  • Private Investors: Private investors can be individuals or groups. Some investors prefer to be silent partners, while some will want a more direct connection to the management decisions being made in your small business. Understand what the ramifications will be before you accept an investment in your small business. An investor’s input can be very beneficial; in addition to funding they can offer guidance and some creative direction.

An SBA loan is a small business startup loan that is backed by the Small Business Administration. SBA does not provide these loans; rather, they are the guarantor of the loan. This means, in case of default, SBA subsidizes the provider. This makes the lending opportunity more attractive to a lender, but it also makes the qualifications more stringent than some other methods of funding.


Working capital is a fundamental accounting concept essential to running a business. Essentially, working capital is a company’s current assets minus its current liabilities. Current assets are typically those that are highly liquid, such as cash or inventory. Current liabilities are those debts or accounts payable that are due to creditors within one year. Working capital is the money used to purchase inventory and sustain operating activities.

Available working capital can measure the success of a company by how it manages its cash flows. Working capital can also help measure how well debt instruments are being implemented and used to leverage the business into a position of increased financial strength. If your company has positive working capital it may be in good shape to continue operations without immediate financing. A positive cash flow might indicate operations are being financed well by the sale of inventory, and your business may use the surplus working capital to pay-down liabilities to limit debt. If working capital is negative, your business may have to incur more immediate debt to sustain its operating activities. While this can be tricky, there are some funding alternatives that can increase your working capital without compromising your operations, and when used strategically, an influx of working capital can turn a negative cash flow into a positive.

To ask, “What is the definition of working capital?” and to understand how the answer applies to your organization, you need a solid grasp on the business model your company uses to generate revenues and sustain its activities. Look at your profit and loss statements and your debt-to-income ratio. Look into your accounts to see what your business has borrowed, and what debt remains outstanding. Know exactly where the money is coming in, where it is going out, and how much is tied-up in unmoving inventory. When you understand the definition of working capital and how the formula of assets minus liabilities applies to your business, you can start to look more aggressively to the future and plan for growth more accurately.