Whether your business is struggling due to the pandemic or for other reasons, now may be a particularly challenging time staying afloat. While you may not have the credit or other financial indicators to get a loan from a big bank, other options do exist. Here is a list of 10 alternative lending options for your small business owners.
1. Online Lending
Instead of turning to a bank you can use an online lending service to finance your business. These services often offer lines of credit and term loans. The prerequisites for obtaining this form of financing are less demanding in regards to annual revenue and credit history. These services do often charge higher interest than banks.
2. Lines of Credit
Using this option you will receive a certain amounts of money that you can use at your discretion. It functions similar to a credit card. You will only be responsible to pay back the money that you spend. It is easier to obtain this financing option online than it is from a bank.
3. Merchant Cash Advance
This can be a great way to get the cash your business needs to thrive without the headache of paying loans back on time and having the money to do so. The amount of money your business is approved for will be determined when the provider of the MCA reviews your credit card receipts and calculates a percentage that you are likely able to pay back. Some pros here are small business owners can say goodbye to regular fixed payments and the approval process for MCA’s is generally faster than traditional loans. A downside is that the rates that MCA’s do take is higher than other options.
4. Purchase Order Financing
The company providing this assistance will pay the distributor directly. Pros for this option include your peace of mind. Knowing that your order has been secured and you can focus on the next steps may help you sleep at night. You don’t need to dig into your savings in order to keep your business stocked. There are no long standing obligations on your part. If your company needs to order more/less the PO financing company will be flexible with you. The cons are that these companies do not work with installments, the payment is done upfront. Another nontraditional aspect of POF’s is the customer will be paying the lender. This may affect your relationship with the customer and perhaps damage their trust in your business.
5. Peer to Peer lending transactions
This kind of loan allows you to dig into the online community of peer to peer lenders. On the site that you chose, post the amount you would like to borrow and the amount of interest you are willing to pay. Lenders who view your information will bid on your loan. This is one of the only loan options that allows the borrower zero contact with a big corporation. Some pros are: repayment penalties are not part of the picture and interest rates vary according to one’s credit. The cons: maximum on loans can be on the lower end and these loans are not available in all 50 states.
Crowdfunding websites can certainly be leveraged for financing your business. If you are passionate about the service you provide and able to package it in a way that excites others, this can be the perfect platform for you. One big advantage of crowdfunding is that the people financing you are not stressed about parting with large sums of cash. Instead Lots of people can invest small amounts. You can set your financial goal without having to navigate the bureaucracy of loan applications. Using this model you take success into your own hands by setting the stage to inspire your investors through your self -made campaign.
These are loans for sums that big banks consider to be too small for their time. Generally these are $50,000 or less. These loans may have repayment periods lasting only a few months.
8. Get a Business credit card
This is a simple way to keep your business afloat without jumping through any of the hoops regarding loans. While you are paying for your business to survive and begin to thrive, you can be increasing your credit score and earning points and miles. Most Business credit cards do want to see a positive credit history.
If your credit is not great you may want to consider an asset based loan. Instead of your credit score being the deciding factor in your business. Receiving the loan, collateral is put up by the borrower.
9. Sell your accounts receivables
Sell your receivables to a factoring company. These companies will pay you for the invoices that have not been paid. They will then assume the responsibility of collecting. Your company will receive an advance according to the unpaid balances that you give to the factoring company. This deal does come with a higher rate than bank loans but it is an easier loan to obtain at the end of the day.
10. Inventory financing
Working with banks or other lenders, one can receive a loan and use your inventory as collateral. The value of your business’s inventory will obviously be a deciding factor in whether or not you receive this form of assistance. The company providing you with the financing is likely to pay 50% – 80% the liquidation value of your inventory’s marked liquidation value.