Business owners and entrepreneurs who need a cash injection for their business usually turn to banks first. However, it is a well-known and widely reported fact that banks have strict lending standards. Why is that? It is not the business to blame. It is the underlying economy and has encouraged the development of many alternative fast business loans in the market. Here we have described some of them.
Types of Alternative Financing for Your Business
Whatever the reason, there are many alternative business loan options that you can consider.
1. Merchant Cash Advance
This alternative corporate finance strategy allows a business owner to sell future accounts receivable purchases to a corporate finance organization. The company essentially agrees to sell a portion of future sales as a cash advance. It is an effective alternative for business financing as it allows for flexible remittances. Because investors who generate revenue from a company’s sales tend to approve based on a company’s strengths rather than individual creditworthiness, it makes MCA a great alternative to private business loans.
2. Peer-to-peer (P2P) lending
P2P lending is done through an online platform/marketplace that connects small business owners with investors with the required capital. As an alternative financing option, P2P lending allows borrowers to avoid the hassles of banks and support borrowing flexibility. With no regulated financial institutions, borrowers and lenders can set their terms.
Like traditional bank loans, microfinance provides loans only on a small scale to businesses in need. These loans typically range from $5,000 to $50,000 and often have faster approval processes and flexible repayment terms, making them ideal for small businesses.
4. Working capital loan
Finding alternative loans for small businesses does not mean avoiding credit altogether. A working capital fast business loan is a non-traditional way to raise capital quickly. These loans are used to cover ongoing and operational expenses.
Regarding alternative financing for small businesses, working capital loans can add much-needed flexibility during times of low cash flow. For example, businesses with seasonal products can benefit from off-season working capital loans. But remember that you have to pay for these in fixed daily or weekly instalments. So it would help if you were confident that your business could keep up with payments.
5. Business Credit Line
A common alternative corporate financing strategy is to use designated lines of credit for business purposes. Business credit cards typically offer higher limits and lower interest rates than business credit cards, making them ideal for businesses that need budget flexibility to invest in growth initiatives, small business marketing, and more.
Under such favourable conditions, it is naturally difficult to obtain loans for businesses. Your lender will discuss options with you, including pledging assets, to find a loan option that meets your needs.
6. Invoice Funding
Loans by invoice are a popular way to maintain cash flow for small businesses that are waiting for their debtors to pay their bills. There are two types of invoice finance:
- Invoice factoring: Sell your invoices to third parties at discounted prices and make instant payments.
- Invoice Financing: Receive a loan using the issued bill as collateral.
Some invoice financing services offer 100% of the invoice amount for a small usage fee and a recurring weekly interest rate. Invoice finance is popular with small business service providers, agents, and handypersons who often need help with cash flow problems after completing a project and purchasing materials, delaying their work payments.
Companies worldwide are successfully persuading strangers to pool funds to help launch their next great idea through sites. However, it would help if you had an attractive project or business model to attract the interest of potential funders. Funders may expect various rewards, such as a portion of the proceeds, free products, or the opportunity to help with the design process.
There are over 600 crowdfunding sites in the world. Some sites allow you to fund your company with stock or shares, making it easy to attract potential investors. However, in doing so, you lose some control over the company. It is an excellent alternative to traditional financing institutes with strict lending criteria and a long processing time.
How can alternative financial products help your business?
There are many ways alternative financial products can help grow your business. Poor creditworthiness makes it harder to get small business loans from traditional lenders. Alternatively, the business owner may need a quick cash injection that cannot be obtained through an extensive credit process. There are several reasons small business owners turn to fast business loan alternatives. Here are some of the most common:
1. Relaxed credit requirements
Traditional banks will almost certainly refuse to lend to borrowers whose credit scores fall below a certain threshold. It varies from lender to lender but is often between 600 and 650. The lending criteria for alternative financial products are much more relaxed. Even the newer businesses with no credit history find it easy to apply for funding.
2. Easier certification
Not all small business owners meet the extra requirements to apply for and are approved for a traditional loan. In such cases, private business loan alternatives can help.
3. Rapid Approval
While traditional bank loans can take weeks to be approved, some business loan alternatives can get you financed in as little as 24 hours.
4. Competitive interest rates
It is a misconception that alternative financial products have an increased interest rate. The market is highly competitive, and certain products are secured loans such as invoice factoring (where invoices act as collateral). It makes the lending criteria favourable.
Alternative private funders serve as a financial support system for companies that do not qualify for mainstream lending. They can provide post-due diligence funding support and can also provide short-term working capital needs. It is ideal for Companies to have more control over their finances.
Raising money to fund your growth plans is easy if you are willing to look for another provider. Funding growth is no longer the exclusive domain of traditional banks; it is up to business owners to look for alternatives.