One of the biggest problems facing small businesses, and in particular minority businesses, is the ability to get capital during tight economic times. All of the present forecasts clearly show that minority business people are discriminated against when approaching traditional lenders far more than small, white-owned businesses.
So what do you do when you need capital fast? Who do you call when a deal has gone sour and you need a helping hand?
An old friend of mine, Michael DeVaughn, recently reminded me of an option that I had used in the past.
"What businesses don't know can hurt them. People don't know that there is a group of people called factors. These people will take your invoices and give you 95-98 cents on the dollar," DeVaughn said before adding a caution. "I would suggest that you don't get carried away with this. You only use them during periods when you really need cash, and then stop or you may get overly dependent on these people."
What DeVaughn is talking about is the fee that you pay to factors that should be in your bank account. Use them and pay them off and then go back to your internal bookkeeping system when the crisis is over.
"Factors are business loan sharks," DeVaughn said." They know you can't go anywhere else. The reason most people factor is that they have contracts but don't have the ability to pay their bills before the contract pays. After you get paid, cut [the factor] off."
The other area where money can be saved is through understanding the processing cost.
"What is processing? Processing is the business that follows every transaction a business incurs, be it cash, check, credit card, or debit," DeVaughn explained. "All of these transactions must be processed and each transaction has a different cost that is paid by the merchant. He is charged a fee for accepting every kind of financial transaction. Merchants are mainly concerned with how much money they make off the transaction and don't realize the money they can save on how the deal is processed."
DeVaughn noted that merchants look at the rate their processor charges, but it is not the whole story. They may charge you 1.7 percent on your overall transaction, but there are some other things that cost the merchant. Time should be considered, and the disputes with customers are another concern."
DeVaughn says that merchants and their customers who decide to stop payment on a transaction can, for any number of reasons, put the merchant in a costly cycle of litigations.
"What many merchants don't realize is that a handful of processors can do everything in-house and resolve the issue for you," DeVaughn said. "If you farm it out to some other company, and most processors do, you get those delays and it can cost [a merchant] money. So it's important to know if your processor is full service or not."
It's also important for merchants to understand that they can receive checks as cash and any of the processors can hook you up with the needed equipment.
"It's virtually impossible to bounce a check now with the right equipment," DeVaughn said. "Checks can now be converted into cash."
The top processors can also work with companies they have a history with and extend them money based on receivables the same way factors can.
"These are not loans. They are based on the company's receivables," DeVaughn said. "The merchant loves it because they don't see the money paid back because it comes out of receivables, and during a bad business season they still have to stay open and pay staff. There are companies that get $2,500 to $150,000 using this system and many companies have used this to grow their business and stay away from high-interest loans."
These financial systems are not for everyone, and it's important to talk with someone knowledgeable before using them to get money.
"Most people don't know their processor or whether it is full-service or not, DeVaughn said. "If you are in business, you do want a full service processor and one who does everything in-house. You never know when you may need his services, and this will save you thousands of dollars a year."
If you have a factor or processor (anyone who has a business has a processor) you should talk to them about your personal situation. If not, call DeVaughn at 206-723-0357 and maybe he can steer you to someone you can work with.
What's important is that small minority businesses have options and know how to use them.
Charlie James may be reached via the address or e-dress listed below. Drop a line.
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