Using Barter to Finance Business Purchases

July 2, 2009 by bobbagga · Leave a Comment
Filed under: Barter Uses & Benefits

A desire to preserve cash is one of the most common reasons businesses use barter. Why spend money when it’s not necessary, right? A variation on the principle of using barter to preserve cash is using barter as a finance mechanism. When credit markets are tight, as they are now, how can a business without adequate cash in the bank make critical capital investments? One SOLUTION is barter finance.

This is how it works: a business joins a barter exchange and takes out a barter line of credit. This line of credit enables that business to buy goods or services from any other member of the barter exchange, be it advertising, printing, IT services, renovations or build-outs of new business locations. Rather than paying cash for the products or services received, the business that took out the line of credit is obliged to pay it back by delivering an equal value of its own products or services at market value to the other members of the exchange. And to help in that process, the exchange acts as a marketing tool by promoting the business to other exchange members in order to generate the additional sales. Where else can you borrow money where the lender actually helps you generate the new sales to pay back the loan?

In conjunction to preserving cash, this financing method has some other advantages over traditional financing, which means it shouldn’t just be thought of as a strategy employed during difficult economic times. It raises capital in a way that doesn’t dilute the stock holdings of shareholders; it results in immediate new customers from the exchange; and it frees up cash for the business to assist in further expansion, debt reduction or dividends.

Let me know if you want to know other specifics about how barter financing works or why it’s beneficial.

- Bob