Many small businesses require outside funding but find it difficult to obtain loans through traditional financial institutions such as banks. However, numerous online lenders are alleviating this frustration by using technology to link borrowers with the capital that they need. Advantages to borrowers include quick response times to applications, less strict requirements for approval, and the ability to comparison shop online for the lender that best meets their needs. Here are some of the alternative lending possibilities available to small businesses.
Business Line of Credit
When you establish a business line of credit, you have funds available to you up to a predetermined limit whenever you need them, and you only pay interest on the money you use. This option works well in covering periodic gaps in cash flow due to slack seasons, taking advantage of unexpected opportunities for growth, or handling emergency situations.
Business to Business Loan
B2B loans are often arranged by online companies that bring together borrowers and lenders. These are usually term loans similar to those offered by traditional financial institutions. Requirements for a B2B term loan may be higher than those for other types of alternative lending.
Invoice financing involves using unpaid accounts receivables as collateral for loans. This is beneficial for companies with long payment terms who need to strengthen cash flow while waiting for clients to pay their bills.
Equity-based crowdfunding allows entrepreneurs to raise necessary capital when they are just starting up their businesses. Venture capitalists, angel investors, and other individuals invest in shares in your company but expect equity in return. The disadvantage of this method of funding is that business owners are not able to retain complete control of their companies.
Merchant Cash Advance
With merchant cash advances, businesses receive a lump-sum advance in exchange for a percentage of future debit or credit card sales. Because of high fees and rates, this option is usually only used by businesses as a last resort.
For more advice on alternative lending options for small businesses, look to Xcellerated Business Funding.