As a small business owner, starting or been operating for a while, you will sometimes face financial problems that you will be needing urgent cash aid. This is the case whether you are learning how to start an llc or are already an experienced sole proprietor. Many small businesses and corporations alike have struggled to stay afloat financially in the wake of recent global events.
While most people in the business think that bank loan is the best solution to business finance issues, that might be wrong today. Bank loans are an old school solution that don't always work well for new school businesses.
Though they are considered a growing company's best funding sources, banks may not always be willing to help businesses. They often have more stringent lending standards than other alternative financing institutions. By this, business owners find it hard to get necessary bank financing to manage their budget and grow their business.
Yet, banks aren't the only institution that business people can try to source out for funds. This article outlines some of the more widely known types of alternative financing solutions.
1. Merchant Cash Advances
Loan requirements provided by most banks today have become stricter and more systematized. Thus, it creates fewer options for business people to get their needed cash. Luckily, business owners have other funding options, such as merchant cash advance.
With a merchant cash advance (MCA), a business owner can be provided with a lump sum amount of funds in exchange for a portion of sales. Once a cash advance is issued, the provider charges a minimal fee for processing the transaction. No strict requirements are needed. Instead, having a steady pace of sales, you're most likely to be a perfect potential client.
When it comes to repayment, since payments are calculated based on a certain percentage of your sales, you'll pay more when the profits are bigger. Conversely, at slower periods, you'll pay less.
Merchant Cash Advances help your company's financial short - term obligations without placing excessive pressure on your investment returns.
Though they are considered a growing company's best funding sources, banks may not always be willing to help businesses. They often have more stringent lending standards than other alternative financing institutions. By this, business owners find it hard to get necessary bank financing to manage their budget and grow their business.
Yet, banks aren't the only institution that business people can try to source out for funds. This article outlines some of the more widely known types of alternative financing solutions.
1. Merchant Cash Advances
Loan requirements provided by most banks today have become stricter and more systematized. Thus, it creates fewer options for business people to get their needed cash. Luckily, business owners have other funding options, such as merchant cash advance.
With a merchant cash advance (MCA), a business owner can be provided with a lump sum amount of funds in exchange for a portion of sales. Once a cash advance is issued, the provider charges a minimal fee for processing the transaction. No strict requirements are needed. Instead, having a steady pace of sales, you're most likely to be a perfect potential client.
When it comes to repayment, since payments are calculated based on a certain percentage of your sales, you'll pay more when the profits are bigger. Conversely, at slower periods, you'll pay less.
Merchant Cash Advances help your company's financial short - term obligations without placing excessive pressure on your investment returns.
There are some things to be careful about, however. While MCAs provide immediate liquidity, they can also lead to a cycle of dependency if not managed wisely. It is essential to consider debt relief services if your business struggles with repayment, as these services can negotiate more favorable terms or consolidate multiple advances into a single, manageable payment. This proactive approach can safeguard your business's financial health and ensure that short-term solutions don't evolve into long-term problems.
2. Lines Of Credit
The next best thing after MCA's are LOC's or line of credit. It is a kind of business financing solution that can be obtained from either a bank or an online lender. Yet, particular to business LOC's, it is more visible and can be easily accessed online than on banks.
If you're not familiar with terms, a credit line can serve as a network of financial security or a source of business capital. You get an amount of which you can withdraw or swipe any time (like a credit card). There's only an interest charged on what you've borrowed.
Online businesses line of credit is a decent alternate lending choice for a company that doesn't need a large sum of capital but needs extra funds to meet costs, including payroll during tight times.
3. Business Credit Cards
In the same manner as LOC's, credit cards for business can help pay for expenses without getting a loan. You can use it to settle for large or small-ticket items while redeeming rewards and build your credit profile. If you don't need to make a big purchase right now, having a business credit card when you need it is a good idea.
Make sure you get the best one when choosing a credit card for business. The best solution in giving you the highest amount of money-back or other rewards for the kinds of transactions your company is making the most.
Most credit cards for business are used for paying business airfares while others are for common business expenses – such as purchases of utilities and office supplies. Some cards also grant the first year at zero per cent interest.
4. Asset-Based Loans
Not quite similar to the three alternative financing solutions mentioned earlier, asset-based business funding solutions include using the assets you plan on buying as collateral for the amount of the loan you intend to borrow. Simply put, the asset-based loan provider will be the rightful owner the business assets held as collateral until you render the very last loan repayment.
For this particular type of funding, you may pick either the lease or the hire purchase contract. The hire purchase contract of financing puts the asset on the balance statements. With the lease contract case, on the other hand, the asset is not subjected to any balance statements, not until it's paid in full inclusive of charges.
This type of fund sourcing is ideal for businesses that have plans for expansion or are relocating to a new and bigger site.
5. Invoice Factoring
Invoice factoring is one of the earliest forms of business financing solution. Its history can be traced back early as the Roman Empire. Interestingly, despite its background, many business owners aren't familiar with this type.
Factoring is not known as a loan; it's a transfer of ownership and resources. A factoring firm will buy the invoice-generated receivables. The factor pays the cheapest initial payment based on the receivables' price and often tends to take on the firm's behalf. It saves the business owners so that they can focus on their operational activities.
Factoring differs from asset-based loans for several reasons. One of which is the receivables are applied as collateral for a loan for asset-based financing, which affects the company's credit profile. For factoring, the company's credit rating remains constant, as no loan is created.
The Bottom Line On Bank Loan Alternatives
Since banks have specific loan approval standards, businesses may find it hard to raise finances if they do it the old-fashioned way. Alternative financing options include easy credit qualifications and negotiable terms. That alone meets the business owner's needs in solving their financial problems.
Assuming that banks are the only way where you can get business loans is a myth. After all, you can be confident of getting loan approval if your business hasn't gone well through time. Try to seek help from the alternatives listed above. An alternative financing solution's screening process is quicker, and you shouldn't need longer time waiting for grants.
2. Lines Of Credit
The next best thing after MCA's are LOC's or line of credit. It is a kind of business financing solution that can be obtained from either a bank or an online lender. Yet, particular to business LOC's, it is more visible and can be easily accessed online than on banks.
If you're not familiar with terms, a credit line can serve as a network of financial security or a source of business capital. You get an amount of which you can withdraw or swipe any time (like a credit card). There's only an interest charged on what you've borrowed.
Online businesses line of credit is a decent alternate lending choice for a company that doesn't need a large sum of capital but needs extra funds to meet costs, including payroll during tight times.
3. Business Credit Cards
In the same manner as LOC's, credit cards for business can help pay for expenses without getting a loan. You can use it to settle for large or small-ticket items while redeeming rewards and build your credit profile. If you don't need to make a big purchase right now, having a business credit card when you need it is a good idea.
Make sure you get the best one when choosing a credit card for business. The best solution in giving you the highest amount of money-back or other rewards for the kinds of transactions your company is making the most.
Most credit cards for business are used for paying business airfares while others are for common business expenses – such as purchases of utilities and office supplies. Some cards also grant the first year at zero per cent interest.
4. Asset-Based Loans
Not quite similar to the three alternative financing solutions mentioned earlier, asset-based business funding solutions include using the assets you plan on buying as collateral for the amount of the loan you intend to borrow. Simply put, the asset-based loan provider will be the rightful owner the business assets held as collateral until you render the very last loan repayment.
For this particular type of funding, you may pick either the lease or the hire purchase contract. The hire purchase contract of financing puts the asset on the balance statements. With the lease contract case, on the other hand, the asset is not subjected to any balance statements, not until it's paid in full inclusive of charges.
This type of fund sourcing is ideal for businesses that have plans for expansion or are relocating to a new and bigger site.
5. Invoice Factoring
Invoice factoring is one of the earliest forms of business financing solution. Its history can be traced back early as the Roman Empire. Interestingly, despite its background, many business owners aren't familiar with this type.
Factoring is not known as a loan; it's a transfer of ownership and resources. A factoring firm will buy the invoice-generated receivables. The factor pays the cheapest initial payment based on the receivables' price and often tends to take on the firm's behalf. It saves the business owners so that they can focus on their operational activities.
Factoring differs from asset-based loans for several reasons. One of which is the receivables are applied as collateral for a loan for asset-based financing, which affects the company's credit profile. For factoring, the company's credit rating remains constant, as no loan is created.
The Bottom Line On Bank Loan Alternatives
Since banks have specific loan approval standards, businesses may find it hard to raise finances if they do it the old-fashioned way. Alternative financing options include easy credit qualifications and negotiable terms. That alone meets the business owner's needs in solving their financial problems.
Assuming that banks are the only way where you can get business loans is a myth. After all, you can be confident of getting loan approval if your business hasn't gone well through time. Try to seek help from the alternatives listed above. An alternative financing solution's screening process is quicker, and you shouldn't need longer time waiting for grants.
