Using Barter to Finance Business Purchases
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
Change and more of the same – the future looks bright for barter
The economy took a nosedive and suddenly barter is getting a lot of attention. What happened is that the downturn led many companies—small, medium and large—to discover barter for the first time. As a result, barter is growing faster than ever and receiving the media coverage to match.
In my opinion, though, the positive press and attention is overdue. I say this because I’ve long stated that barter is not only for the tough times. It’s a strategic tool that should be used during economic expansions and contractions. This is because preserving cash and moving excess inventory and capacity will always enable a business to grow faster and become more profitable, no matter what the prevailing economic conditions. Why wouldn’t a business want that arrow in its quiver in good times?
What I’m excited about is that once things turn around, I suspect the majority of companies that turned to barter to help their businesses grow during the downturn will continue to use it as a tool. Why would a company work to become more efficient and then allow itself to backslide? (I’m sure it happens, but it isn’t smart business.) The only difference today is that businesses are forced to be more efficient. Savvy companies have been using barter out of choice for decades.
At its base, barter is an efficiency tool, which is why so many companies are now discovering it—everyone’s working to become more efficient to weather the storm. People are discovering they can use barter to pay for a wide variety of products and services for which they are accustomed to writing checks, including advertising, capital expenditures, commodities and assets. They’re also realizing that using barter helps bring in new cash-paying customers.
When things turn around, none of these things will change.
- Bob
About Bob
Bob Bagga is the President and Chief Executive Officer of BizXchange and is recognized internationally for his accomplishments in the barter industry. More...
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By N2H