Typically, when a business is in need of additional funding or capital, they turn first to banks. Banks, however, are not always the quickest or the best option for small businesses, and it is oftentimes hard to get loan approval. In fact, only about 34% of small businesses receive funding through a bank loan. Fortunately, there are alternative options for small businesses seeking funding for your business that don’t involve going through a bank. A bank loan is not the be all end all for small business financing. Getting declined by your bank can be discouraging, but it doesn’t mean you’re destined to fail.
Merchant Cash Advance (MCA)
As an alternative method of business funding, merchant cash advances are a purchase and sale of future payment card receivables. This is a great funding option for businesses that have significant credit card sales or less-than-perfect credit. With a merchant cash advance, businesses typically receive the advance in a few days, and pay it off much faster than a bank loan. Merchant cash advances are great for businesses needing short-term funding to pay off a sudden expense and don’t want to be burdened by ongoing payments.
Accounts Receivable Financing
An accounts receivable or invoice financing agreement is ideal for businesses needing funding to cover expenses when working capital is tied up until customers pay invoices. In many industries, the business is paid upfront when a customer buys a product or service. Other industries allow customers 30 days or more to pay for the product or service, putting the business in a tighter cash flow situation. Accounts receivable financing is an asset-based arrangement in which companies use their receivables as collateral. In exchange, you obtain funding for your business, allowing the acceleration of cash flow. One key benefit is that it is a transaction, rather than a loan, so no debt is incurred and the processing time is shorter.
Business Line Of Credit
A business line of credit is an “unsecured” loan that businesses can use without going through the process of borrowing a large amount all at once. Once you have approval, you draw on the your account as you need it, and payment toward the line of credit is only required when it is actively drawn upon. One advantage of this financing option is that it will report directly to your business credit, allowing you to build your credit score while getting the funding needed.
It is important to remember not to lose hope if a bank turns your loan application down. There are a lot of funding options available for small businesses. Capital Collab has already done the research and can tell you which option is best for your funding needs. Tell us about your needs and we’ll set you up with the most strategic option for your business.