Small businesses have a hard time surviving, and are now being cut off from getting bank loans. They are losing out on their customers, which in turn has affected their sales. Due to this, small businesses resort to laying off employees. Most importantly, they can’t get business loans or business credit due to a lack of creditworthiness. Nowadays, banks are not comfortable with working with small businesses, or at least not as much as before.
If your small business is in desperate need for financing, but is struggling with it, you can look into alternative business loans. They may not be the traditional business loans or business credit you are normally accustomed to, but they can get the job done. To easily obtain alternative financing for your small business, here are a couple of tips to take into your consideration.
Credit Cards can be used as a Source of Financing
Of course, this may not be the greatest way to obtain financing for your small business due to the high interest rates and restrictive terms, but it is an option. While negotiating interest rates, do not give in too easily. Get the lowest possible rate from the credit card company.
If you do take this route, you need to keep track and make your payments in a timely manner.
Merchant Cash Advances
How merchant cash advances work is that you make a deal on the sale and purchase of future credit income.
A small business is not required to make fixed payments, but instead the lender collects a certain percentage from the credit card sales made on a daily basis.
Merchant cash advances do not have an interest rate, and they can be quite expensive. But at least it allows a business to stay afloat.
This method of alternative financing is quite similar to how eBay transactions work. Basically, you post the amount of financing you require on peer-to-peer lending sites along with the maximum number of interest you are willing to pay.
Potential lenders will bid on your loan, but only as long as you have a great credit score.
Hard Money Loans for Financing
What is interesting about hard money loans is that they are not dependent on your business’ creditworthiness. It is an incredibly risky, asset-based loan that relies on the borrower’s collateral.
Use Your Inventory to Raise Money
For an injection of working capital, small businesses can use their inventory as collateral. Accounts receivable and inventory financing are important sources of financing that businesses involved in imports heavily rely on. But this does not mean the loan can’t be used for other reasons.
Sell Your Accounts Receivables
You can always sell your accounts receivables to get the working capital you need for your business to remain operational without any hiccups. The interest rates will be higher than what you would get from a bank, but at least this is an easy way to get a loan.
Purchase Order Financing
The practice is quite similar to the old fashioned factoring, except for the fact that it takes things up a notch. They guarantee a buyer for the company’s products. They pay for the product to be manufactured, after which they take their cut and let the business have whatever remains.
Even though small businesses may not be getting entertained by banks, it does not mean they do not have any options. They can look into numerous options, like the ones mentioned above, to get the financing they need. Alternative financing has become mainstream, so they are competitive enough to give traditional banks a run for their money, thus improving the credit markets for small businesses to operate in.