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Everything You Never Knew You Wanted to Know About Debt

Published May 9, 2023
Published May 9, 2023
Olia Danilevich via Pexels

Recent events in the banking sector—in particular, the dizzying, lightning-fast failure of Silicon Valley Bank (SVB)—has forced many beauty founders and business owners to take a long, hard look at their current financing and funding options to ensure that their finances are sound and in good order. Venture capital investment had already been cooling down in the months leading up to the SVB crisis. And because many of these smaller specialized institutional and regional banks cater directly to venture capital–backed companies and their portfolio companies, it’s likely we will continue to see more of a slowdown in venture-backed investing across the beauty space in the months to come.

Many founders are now beginning to look for alternative forms of financing to keep up with growth and expansion and re-evaluating venture term loans. Instead, they’re looking to open working-capital facilities with a lender, oftentimes in tandem or paired with equity or venture funding for more flexible liquidity. Although debt can sometimes seem like a dirty word, the popular alternative—raising equity—isn’t always as glamorous as it seems, especially when it involves chasing limited VC dollars, diluting ownership in your company, and operating at a loss. Founders and business owners in the beauty and cosmetics space shouldn’t feel pressured into pursuing VC funding, friends and family investments, or angel investors, at least without first understanding various debt options that might prove to be a better fit or complement to more dilutive options.

In today’s market, especially with credit tightening, securing equity is not as easy as it once was. Debt might be the way to hold off that raise, or at the very least, be that extra additional boost to fuel the fire. Leveraging debt allows companies to focus on profitable metrics and support the business with cash flow, which ultimately leads to a better future valuation if equity capital comes into the business.

Read on to learn more about what debt financing solutions can do for your business and how leveraging these options can make all the difference.

The Glossary of Debt
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Asset-Based Lending

Asset-based lending is the most traditional type of financing, as well as the most cost effective. Borrowing against your balance sheet, the lender provides funding based on inventory cost value, typically between 50%-60%. If the business has a wholesale channel, receivables can also be leveraged for cash flow typically up to 85%. By leveraging debt now, brands get an extra boost to accelerate growth without giving up equity or diluting ownership in the business. Beauty brands taking advantage of Section 321 to avoid paying duty on imports should be sure to ask their lenders if inventory located in Canada or Mexico is eligible for borrowing.

Rosenthal’s newest division, Pipeline, serves high-growth DTC and e-commerce businesses (beauty included) and focuses on leveraging inventory and sales data by SKU to extend advance rates against inventory even further for direct-to-consumer sales.


A form of secured lending, factoring is a great tool for wholesale companies selling into retail stores to get working capital to run their companies. A factor lends up to 85% against your receivable for cash flow and will assume the credit risk. So, if your customer files for bankruptcy while you have outstanding receivables, the factor will pay you the full amount of the invoice. Factors also handle all aspects of managing the receivable (i.e., ledgering, reporting, and following up with customers on your behalf when payment is due) and essentially become an outsourced receivable department. While slightly more expensive than asset-based lending, the added services and benefits beyond increasing cash flow make it worth it for many businesses.

Factoring solutions through companies like Rosenthal can benefit any company that sells products on terms, across a wide range of industries. Factoring gives you early access to your money for products and services you’ve already delivered, allowing you to control your cash flow and keep your business moving forward.

Purchase Order Financing

When beauty companies receive a large purchase order from a retailer but they lack the capital or supplier terms to produce the order, a purchase order (PO) financing firm will often step in to help. PO financing solutions range from a letter of credit if suppliers require cash in advance to produce goods, or a wire transfer to the supplier for final payment when the goods are ready to be put onto a vessel and shipped. Typically, if margins on the order are 25% or greater, a PO financing firm can provide 100% of the cost of the goods to produce the order, including freight and duty payments. When product is received in the company’s warehouse and invoiced out to customers, the PO financing firm is paid by the company’s receivable lender (often a factor or asset-based lender).

PO financing with Rosenthal offers beauty companies a short-term alternative inventory financing option that provides incremental working capital to cash-constrained businesses. It’s a non-dilutive way to provide sufficient capital to produce orders received from retailers on time and without having to raise equity.

Revenue-Based Financing

A borrowing option based off your company’s historic sales, a revenue-based financing approach looks back at 1-3 months’ worth of sales to determine a credit line to draw against. Borrowing rates are dependent on the prior period’s sales average and can be a more expensive debt option compared to asset-based lending. Typically, the company pays back the lender daily around 10%-20% of credit card receipts from website sales.

Revenue-based funders like Wayflyer and Ampla cater to omnichannel brands with high margins. Seasonal brands that need to bring in inventory during the summer months with minimal sales to leverage should be wary of this option. While often a pricier solution, revenue-based financing typically provides more liquidity than other debt options.

Accounts Payable Financing

Accounts payable financing is a great option for companies that receive extended payment terms on inventory purchases from a lender rather than the supplier directly. The lender will typically extend payment terms on purchases to their borrower in 30-day increments, up to as much as 120 days with payback auto-debited from their borrower’s operating account.

Through platforms like Settle, companies can pay suppliers immediately without having to use their own working capital. Think of accounts payable financing as PO financing for direct-to-consumer brands that lack capital or supplier terms but know they can sell through items quickly and efficiently with a high-enough margin to cover the cost of this type of capital.