Whether you are just starting out your small business or have been in business for some time, as a small business owner, you are bound to experience some situations where you will need some immediate funding solution. While bank loan is seen by many business owners as the preferred small business funding solution, however banks may not always be interested in helping small business owners.
Additionally, in case your business reaches to a certain level where you’re unable to fulfill the strict criteria set by banks, some of the options that comes in your mind are maxing out the limit of your credit card, selling your personal assets, using your retirement funds, or borrowing a loan against your assets.
Definitely these general small business funding options are excellent; however there are some other alternative funding solutions that you could pick out from without having to tap into your personal savings or putting your valuable asset at risk.
If you’re ready to give alternative funding a shot, here are a couple of solutions that you can use for your small business financial requirements.
- Asset-Based Lending
Asset-based lending involves using your assets that you plan to purchase as collateral for the loan amount. To put it simply, the asset-based financing firm remains the owner of your assets until you repay the full loan amount.
In asset-based finance settings, you can pick either the hire purchase or lease purchase options. The first one includes the asset on your balance sheet, and within the latter type, your asset remains off the balance sheet until the amount has been fully paid along with the purchase fees.
- Business Line of Credit
This type of business funding program helps small businesses to pay for short-term expenses such as buying equipment, increasing inventory, covering operational expenses, and so on. Business lines of credit works same like credit cards; you’re given access to a certain amount of cash that you can use for your business as you deem fit. Regular payments are made by the lender and you can withdraw as much cash as you need. Additionally, the interest is charged only on the amount you withdraw. However, the interest rates are somewhat higher than other type of alternative small business funding programs.
- Invoice Factoring
Invoice factoring is best for businesses selling B2B services or products. In this type of business financing, invoices are issued to customers or clients and invoice copies are sent to the lender. On getting the invoice copies, the lender pays a percentage of the invoice value to the company. Once the full payment has been received from the customers or clients, the lender pays the rest of the invoice value to the company after deducting some applicable charges.
- Merchant Cash Advance
A merchant cash advance is secured after the lender examines your business’ cash flow and finds it positive. This type of small business funding is also secured by future credit card transactions, making it an excellent alternative funding program to small business loans and other traditional type of business financing alternatives, mainly for small businesses that lack credit score or collateral to secure funding from traditional sources.