Alternative Lending Sources for Small Business Owners
Depending on the history of your business, it may be hard for you to qualify for traditional loans. Most banks and loan offices want to see years of company history as well as a good personal and business credit score. If you fail in one or more area, you may not get the money you need to grow your business. Thankfully, businesses can turn to alternative lending sources to get the capital needed to pay bills, complete a project or upgrade a building.
Mircoloans typically come in small amounts, but some businesses may qualify for larger financing. This type of loan does not come from a bank, so you do not have to worry about providing tons of documentation. In fact, many lenders offering this financing do not care if your credit score is low. The one drawback of this method is that it can result in much higher interest rates.
A business cash advance, sometimes referred to as a merchant cash advance, can give you working capital if you sell your future credit card receivables. Rather than look at your credit history, lenders review your monthly credit card receivables to determine the amount you qualify for. This can help your business get cash quickly, but it may cut into your future cash flow because the lender gets a portion of the income from your credit sales.
Factoring is another popular alternative lending option. You sell a lending company your customer receivables in exchange for a lump sum of cash. This can be beneficial because you are no longer at risk should your customer default on the payments. However, not all factoring companies are reputable.
Auctioning receivables is a modified form of factoring. Rather than sell your receivables to one lending company, you use a network to auction your customer bills to the highest bidder. You have the potential of getting a better rate this way because the prices will be more competitive.
Equipment sale-leaseback is a great option for companies that own expensive machinery. You sell your equipment to a lender for a lump sum, and then they lease the machinery back to you. This loan source is beneficial because you get to keep the equipment, but you still get a nice amount of money that you can use during a critical time in your company.
If you need some extra cash for your business, you have a lot of loan options. Traditional bank loans may be your first option, but your company might not qualify for the amount you need. If you are struggling to get a loan, turn to alternative lending options.