4 Ways to Finance Your Oilfield Service Company

Oilfield services companies need cash to operate. Meeting payroll, purchasing supplies, and normal business expenses all require having cash available. Having cash available on a consistent basis is tricky when working for companies with extended payment terms. However, there are options to explore.

Your oilfield service company needs consistent cash flow. Here are four ways for you to finance

1. Business Loans

Financing options for oilfield service companiesBusiness loans are a common form of financing for many companies. To obtain a business loan through a bank, you will need to apply, qualify, and get approved for a specific amount. After the approval process is complete, you get access to money. This process can take weeks or months before you actually get the capital from the bank. This wait can be too long for your company, especially if there are new opportunities you are going after.

When you are approved for a business loan, the funding is usually secured by your corporate assets – and sometimes even your personal assets. Monthly interest is paid to the bank depending on your credit and other factors. The SBA loan rates as of March 2019 range from 7.25% to 12.00%, depending on the amount borrowed and borrower credit.

2. Invoice Factoring

Invoice factoring is a common way for oilfield service companies to get the cash flow they need. If you are unfamiliar with factoring, here is an introduction: What is factoring. In one sentence, factoring is a financial transaction where a company sells its invoices (accounts receivables) to a third party at a discount. There are several benefits for factoring your oilfield invoices.Oilfield service companies use factoring to counter extended payment terms.

  • Same Day Cash: Instead of waiting for 30 days, 60 days, or even 90 days on a customer payment, factoring your invoices provides you immediate cash on your receivables. Scale Funding advance 90 percent of the invoice value, on the same day we receive it. Once the customer pays the invoice, Scale Funding pays you the remaining 10 percent, minus a small factoring fee.
  • Bridges the Gap: Factoring will help you bridge the gap from the time when you need to pay your employees and bills and when your customers pay you.
  • No Debt: Factoring does not create debt on your balance sheet like a bank loan.
  • Credit: Factoring looks at the credit of your customers, not you or your business. So, if your bank says no, factoring can provide you with the cash flow you need.
  • Cash Availability Grows with your Business: Factoring your accounts receivables will give you a consistent supply of cash that actually grows as your oilfield service company grows. When you get a new client or contract, more working capital becomes available.
  • Back-Office Support: Scale Funding provides back-office support including accounts receivable management services, credit analysis, and risk assessment as added services at no extra cost.

3. Investors

Your first thought might be to ask friends or family to invest in your company. Although this might seem like a good idea, it is always good to think twice about it first. When money comes between friends and family, things can get difficult – especially if things don’t go as planned.

You can also look into angel investors. These are professionals who are willing to invest money in your business. In return, they typically will want some type of profit sharing, a percentage of the company or their money paid back with interest.

If you decide to finance your oilfield service company through investors, make sure you have done the proper research and have a prepared presentation to convince them to invest. In this article from entrepreneur.com, it explains five of the worst mistakes entrepreneurs make when pitching to investors.

4. Merchant Cash Advance

Merchant cash advance (MCA) companies are becoming more common, and market themselves as a way of financing for small businesses. MCA companies provide short-term advances with little paperwork, and can usually deposit money into your bank account within a day or two. There are a few things to consider about MCA companies.

  • MCA companies charge rates up to 30%.
  • Daily withdrawals from your bank account reduces cash flow.
  • They will not provide additional capital until previous balances have been paid in full.

Choosing the Right Financing  for Your Oilfield Service Company

Whether you decide a business loan, factoring, investors or a merchant cash advance company is the right way to finance your oilfield service company, make sure to do your research. If you have questions, contact Scale Funding and speak with one of our financing experts. They will provide a free, no-obligation consultation and factoring quote. To begin, call (800) 707-4845.


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