The Wall Street Journal had a great section on entrepreneurship on Monday, May 11, 2009.

It seem that with so many people losing their jobs over the last year due to the tanking economy, start-ups, business opportunities and franchising are booming.

In a section about funding small businesses, author Simona Covel talks about Data Drive Thru, a Dallas based data transferring company whose second round of $7.5 million venture funding fell apart when the credit markets froze and since they were too new to have the well established cash flow reserves that are necessary for traditional bank financing that the company decided to take the "unconventional step" of selling off their accounts receivables.

Unconventional, she goes onto explain, because factoring as the process is commonly known, is a small corner of finance that is considered to be a funding source of last resort due to tales of unsavory business practices and interest rates sometimes exceeding 30 or 40 percent annually.

As an alternative funding specialist I have to deal with – and counter – such misconceptions about the factoring on what feels like a daily basis. Ms. Covel’s assertions couldn’t be further from the truth and let tell you why…

First of all, for many companies alternative funding is NOT a last resort at all but the very first place that they go when they need cash flow quickly and without the long-term commitment that comes with a bank loan.

Since alternative funding solutions are predicated on sale/purchase of a debt – a payment to be made to you in the future such as an invoice or a contract – factoring can be customizable to your business’ specific cash needs since you can sell off only as many of your future payments that are necessary to secure the cash that you need at this particular moment. If you need more cash later – then all you have to do is sell off more of your debts.

For start-up and growing operations or businesses with bad credit the ability to sell off payments that are owed to you by creditworthy clients will enable you to operate your business with tremendous financial freedom. Your company does not need to be creditworthy, profitable or meet any of the assorted credit requirements of banks and other traditional lenders in order to get working capital through companies like Benefunding.

Secondly, I don’t know of anyone who can demand 30-40% return on their money except the Mafia and MasterCard.

But I do understand where Ms. Covel is getting her figures. If a business sells $100K worth of their invoices and the funder takes a 5% ($5,000) fee on invoices to be paid in 30 days, the tendency people have is to annualize the 5% and think that the funder is making a 60% return.

But that’s no more true then your business making a 10% profit each month and saying at the end of the year you made a profit of 120%!

The cost to factor your invoices is a transactional cost and not something that you can annualize. If you factor $100K every month with a transactional fee of 5% then after 12 months you would have sold $1.2 million in invoices and paid $60K in fees in order to have your money immediately. Money that you can use to fund new jobs rather than having to turn work away because you’re undercapitalized. Pretty darn good if you ask me!

And finally, as the conventional banking system sinks and the lower deck rats are quickly being exposed by the rising waters I would challenge Ms. Covel to point out anything "savory" in the our "traditional" system.

One of the many, great ironies of the current economic situation is that everyone agrees that the success of small business is the growth engine of our economy but yet as the wobbly traditional finance system receives a monstrous inflow of taxpayer money, banks are tightening their outflow by trimming credit lines, closing accounts and raising interest rates of small businesses.

The alternative funding industry directly solves this problem by allowing cash strapped business owners to monetize future payments for immediate working capital. In other words – cash now for tomorrows payments.

No wonder savvy entrepreneurs are quickly finding themselves not just in the corners of conventional finance but completely "outside the bank" because it’s obvious that is where the cash is now.