Obtaining Funding Without a Bank
Some options to consider for Alternative Financing
Many businesses, at one point or another, will require a loan. Needing a loan is not necessarily a sign the company is struggling. Many companies rely on loans to pay bills on time or secure a great new piece of equipment right away. Going to a bank to secure a loan is a common tactic from most entrepreneurs, but there are actually several alternative financing options. With some of these methods, you may be able to get better interest rates or repayment terms.
Merchant Cash Advance
One option is to acquire a merchant cash advance. They are generally very easy to get, but business owners should watch out for the annual percentage rate. Cash advances sometimes have discounted rates as high as 70 percent. However, if you know you can pay back the money quickly, then it can be worth it.
Invoice Factoring
Invoice factoring is another great option. With this form of financing, you essentially sell your unpaid invoices to a factoring company. This organization provides you with some money upfront. Once the customer pays the factoring company for the invoice, then you receive the rest of the money. A small percentage of the invoice is taking out for the factoring company’s fee, but it is usually worth it to get money in a timelier manner.
A/R Line of Credit
The next option that alternative financing has the ability to provide is a True Revolving Line of Credit using Accounts Receivables as collateral. This type of financing is usually meant for businesses with $1,000,000 in pre-tax earnings, and at least two years time in business. Also, this type of line of credit is meant for businesses that sell objects to other businesses. The main reason why this is so sought after is because usually in the B2B world, your cash cycle tends to extend out longer than thirty and even ninety days. In the meantime you still need to order raw materials, pay employees, rent, etc. The lender will leverage the A/R and advance them up to 95%.
Term Loan
Some businesses can benefit from getting a term loan. This is when your company receives a lump sum of funds. You will repay this money over the course of One to five years with interest. Most companies acquire a term loan when they require a relatively low amount of money and don’t qualify for a traditional bank loan.
Unsecured Business Lines of Credit
The fifth and most readily available option for alternative financing is the business lines of credit. This is primarily for start up businesses or entities whose time in business or monthly deposits don’t qualify them for other alternative avenues. Their are companies who will do consultations and work on your personal credit so that they can apply for business credit cards. Typically you can qualify from ten thousand to one hundred and fifty thousand. This is primarily based upon your FICO credit score, so the better the score, the more you qualify for.
It is critical to look through all your options before getting any kind of loan. Occasionally, acquiring a loan from a standard bank will be the best route to take. In other instances, you will be better off seeking alternative financing. One thing to watch out for is getting any type of financing from an online lender. Always read the fine print before accepting a loan of any amount. If you are in need of alternative financing, speak with an expert by clicking here.
