Searching for business financing can be tricky, to say the least. There are so many lenders out there that it can be difficult to know where to start. Not to mention that lending options are so incredibly diverse.
But when your business is struggling financially and you need to know what your options are right away, you don’t have time for long approval processes and potential loan denials. You need to know that you can secure financing for your business to keep operations running smoothly. And, you don’t want the headache associated with the confusing terms and conditions from traditional lenders.
That’s where alternative business financing comes into play. Since the recession in 2008, alternative lenders have stepped up to help businesses that wouldn’t ordinarily be able to secure loans.
If you’re looking for business finance options for your business, you’ve come to the right place. Keep reading to learn more.
Seven alternative business finance options
Finding the best business finance options for your business doesn’t have to be overwhelming and stressful. There are more than a few lenders to choose from with lending terms that coincide with your needs. All you have to do is a little research.
And, that’s why you’re here. This list should get you started.
Short-term loans work just like regular term loans with the exception of your rate. Instead of an interest rate, you’ll be quoted with a ‘factor rate’ so you’ll need to calculate that cost in order to translate the APR.
A short-term loan is a good alternative business finance option for businesses that need funding right away. You can typically close on the loan and receive your money in as little as a few days.
Generally speaking, you can obtain a short-term loan with a minimum 550 credit score and at least $50,000 in annual revenue. And, you only have to be in business for one year to be eligible.
Line of credit
If you’ve been in business for at least six months and your business has at least $50,000 in annual revenue, a line of credit is a great option for cash emergencies. In fact, you should consider opening a line of credit no matter what your cash situation is just so you have access to it if you need it.
A line of credit works almost like a credit card in that your lender will loan a set amount of cash for you to draw upon as needed. You only pay back what you use, with interest, of course. But it can be a great alternative to finding other financing options when you need money right away.
Peer to peer loans
Peer-to-peer lending is relatively new in the lending marketplace whereby you can skip the banks and traditional lenders to borrow money from your peers. These peers are otherwise investors that take interest in your business through a bidding platform.
If you have bad credit, a peer-to-peer loan probably won’t work because investors tend to turn away from high risks. Ultimately, however, if you have good credit, the approval process is much less stringent than that of traditional banks.
SBA loans are financed through the United States Small Business Administration and often offered by traditional banking institutions. This is a great option if you can’t get approved for a traditional bank loan.
You’ll find long-term financing options that are guaranteed by the government. This means that lenders that wouldn’t ordinarily fund a loan, might because some of their risk is eliminated by the guarantee.
SBA loans are great for businesses that have been in business for at least two years with a 620 credit score or higher. You can find financing options with at least $100,000 in annual revenue.
If you have slow cash flow and customers that pay late on their invoices, invoice financing could be a good option for your business.
Here, lenders will offer anywhere from 50 per cent to 90 per cent of your outstanding invoices as a loan payment to be recouped when your invoices are paid. Generally, these lenders only charge a flat percentage rate for the advance with one percent added for each week that the loan is outstanding.
This business finance option is a great fit for businesses that have been in business for at least six months with $50,000 in annual revenue or more.
Eleven months in business with a 600 credit score or higher and $100,000 in annual revenue qualifies you for an equipment financing loan. With this option, you’ll be able to borrow cash for equipment and use that same equipment as collateral for the loan until it’s paid back. These lenders will typically advance up to 100% of the value of the equipment you are purchasing.
Terms are similar to a normal term loan so you won’t be confused or burdened with debt that affects your revenues.
Merchant cash advance
A merchant cash advance works with your business’ credit card sales. The lender will advance funds that you pay back with a set percent of your credit card sales, daily. This works great for businesses with at least £50,000 in annual revenue and a good credit score.
You only have to be in business for one year to obtain a merchant cash advance and they’re typically a fast funding option.
Alternative business finance options are practically endless if you know where to look. It’s all about how and when you conduct your research that will ensure you’re eligible for this type of funding. Even if you haven’t been in business for very long or you have a low credit rating, alternative financing may be able to help your business.
Don’t get caught up with the banks for months of waiting for a loan approval. And quit worrying about your assets because you won’t have to use them for collateral. Simply keep these tips in mind and follow your instinct to secure a loan that will be right for you.
No matter what your strategy is for running your business, there is probably an alternative business finance option for you.