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Exploring Opportunities in the Oil Business with Accounts Receivable Financing

Posted on September 04, 2013 in Oil & Gas Industry

Fracking is a process for extracting oil from layers of shale by injecting high-pressure water between those layers to fracture the rocks and free the oil. The potential environmental impact of this extraction procedure has been the subject of a great deal of controversy and discussion between opponents and supporters of the method. Many oil companies are advocating the idea of "safer fracking," an extraction process that takes environmental concerns into account and promises to provide a greener alternative to traditional fracking methods. David Cameron, the prime minister of Great Britain, wrote in favor of the process in the Telegraph, stating that safer fracking can produce jobs and income for the nation. Similar arguments have been made in the U.S. For small oil companies, fracking may be a viable option to maintain profitability in a highly competitive marketplace.

Funding the Future of Oil

The cost of fracking equipment and the acquisition of prime areas for oil exploration can create major cash flow difficulties for oil companies. In some cases, traditional funding sources may have run dry; other companies may have experienced credit difficulties in the past that prevent them from obtaining credit from banks and lending institutions. Asset-based inventory loans can provide real help for these smaller oil firms in acquiring the necessary funding to manage new explorations and advanced fracking processes to boost productivity.

The Value of Unsold Inventory

Oil reserves are constantly in demand and can be used as collateral for advanced lending arrangements from asset-based lenders. Most small oil companies retain a certain amount of stock in hand; additionally, the value of equipment and materials can be used to provide security for these loans and lines of credit. For firms considering making the move into greener fracking exploration or simply maintaining their existing equipment and establishing their company in the competitive marketplace, these alternative loans can provide added flexibility in managing financial responsibilities and ensuring the company's continued success in the modern energy industry.

Improved Cash Flow Management

By leveraging the value of unsold inventory to acquire cash on hand, smaller energy companies can expand into new territories and develop new techniques to extract oil safely and effectively. These strategies can increase the profit margins for companies caught in the current credit crunch and can allow the most efficient use of financial resources to continue operations and maintain production even in difficult economic times.

Oil companies can expand their financial portfolios and lending options by considering asset-based loans from companies like 1st Commercial Credit. By monetizing existing assets, these oil firms can enjoy increased flexibility to manage opportunities and avoid cash flow shortfalls to promote future growth.

Funding Foreign Oil Exploration with Accounts Receivable Lending

Enrique Pena Nieto, the president of Mexico, is currently proposing legislation that would allow foreign oil companies to break into the state-controlled Mexican oil industry and begin investing and conducting operations in conjunction with elements of the existing energy industry infrastructure. If approved, this approval will provide added opportunities for growth and expansion for smaller oil firms and exploration companies in the U.S. Finding the necessary funding for these new ventures may be difficult in today's tight commercial credit marketplace. For oil companies interested in partnering with Mexican firms to explore new methods and develop new territories, accounts receivable lending options can be a viable strategy for expansion and success.

Profit Sharing and Collaboration

Mexico's sudden willingness to open its doors to cooperation is likely due to its limited ability to extract gas from large-scale shale fields within its borders. The country has also experienced difficulties in deep-sea drilling activities and is in need of expert advice and guidance from firms experienced in these oil exploration and extraction activities. The current restrictions and regulatory limits placed on foreign companies in Mexico's oil industry have discouraged most U.S. firms from engaging in exploratory drilling or supply activities in the past. By offering sweeter terms for qualified foreign oil companies, Mexico's president and majority party leaders hope to attract new investors and exploration from U.S. and other sources.

How Accounts Receivable Financing Can Help

For smaller oil companies, acquiring funding for expansions into new territories can be a challenging task. Asset-based lenders can often help even in cases where traditional lenders have denied credit in the past. By using outstanding invoices and accounts receivable amounts as the collateral for these specialty business loans, small oil companies can often raise sufficient cash reserves to finance their entry into new marketplaces and new fields of oil exploration. The application process is simple and streamlined to provide fast response times and rapid disbursements of funds after approval. The lender retains the accounts receivable documentation and performs billing and collection activities. Once the funds have been received, the lending company collects its principal and fees and sends the remaining balance on to the borrower.

In most cases, accounts receivable finance companies for oil companies like 1st Commercial Credit can approve loans within one business day after receiving the completed lending application. With disbursement times of one week or less after approval, these loans and lines of credit represent the fastest way to access necessary funding and provide a valuable source of credit for smaller oil companies in the competitive energy marketplace.