Loan Denied? 5 Alternate Financing Options

As a business owner, one of your worst fears may be not getting the finances to keep your business running. However, being denied a loan from the bank does not mean you are out of options. In fact, following are multiple alternative financing options worth exploring to keep your business alive and thriving, as well as the benefits and drawbacks of each options.

1. Factoring

By this process, a business essentially sells its bills for cash. Accounts receivable are sold to the factor at a discount in exchange for immediate cash. Factoring combines working capital financing, credit risk protection, accounts receivable bookkeeping and collection services.

PRO:
This is a good, fast solution for a small business owner who is in need of cash. This is especially useful when the business needs money to maintain operations, but incoming cash is stuck with a client.

CON:
Factor companies that buy accounts receivables are concerned only with their money. They do not care about the business’s reputation or relationship with the client.

HELPFUL TIP:
Choose a factor company that is also considerate when dealing with clients. If you have a longstanding relationship with the factoring company, they will be far more likely to pay attention to maintaining good client relationships on your behalf

2. Lease Back Programs

If a business owns pricey equipment, it can find a lender who will buy the equipment for a lump sum and then lease it back.

PRO:
The business can still use its equipment, while increasing its cash flow.

CON:
By purchasing new equipment and then leasing it, the business ultimately ends up paying more for the equipment.

HELPFUL TIP:
If your business can write off lease payments instead of depreciating the equipment, your equipment costs may be offset by tax savings.

3. Purchase Order Financing

This is a good option for businesses that fear losing a sale because they won’t be able to fulfill a customer’s order in time. A financing agent advances money against a signed purchase order for finished goods to help fund fulfillment of the order.

PRO:
This financing option depends more on the credit standing of the business’s customer rather than its own.

CON:
The financial agents who provide the advance will likely take a cut of the profit, usually in the range of 4 percent or less.

HELPFUL TIP:
This arrangement is particularly helpful if your business is an import-export firm that must pay for raw materials upfront, but wait to get paid for finished goods.

4. Merchant Cash Advance

Some independent finance companies give merchants a lump sum upfront in exchange for a share of their future credit-card sales.

PRO:
Unlike a loan, there are no due dates or fixed payments, and it’s faster to get approved.

CON:
While there’s no traditional interest rate, providers will take a significant cut, generally 15 to 17 percent of credit-card receivables.

HELPFUL TIP:
This arrangement is best suited to retail, service, or restaurant businesses that do frequent credit card transactions.

5. Microloans

A good solution for small or midsized companies, microloans tend to be less in amount, but can run as much as $150,000. The money loaned is often enough to provide working capital for a month, which may be just enough to help the business survive.

PRO:
Microloans are granted to businesses with lower credit scores than banks accept, and don’t require as much paperwork.

CON:
Interest rates are higher than those of bank loans, generally ranging between 12 and 18 percent.

HELPFUL TIP:
Click here for 14 sites to help you get a loan for your small business.

Comments (0) | Trackbacks (0) | Permalink
Post a comment or leave a trackback: Trackback URL.

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*