Small businesses need money for startup capital and to keep the doors open while planning for growth. Unfortunately, traditional banks seldom lend money to small businesses and shy away from startups. Even certain loans for small businesses can be challenging to obtain. Fortunately, there are other options. Here is what you need to know about alternative financing options for your small business.
What is Alternative Financing?
While traditional banks continue to be a source of funding for businesses, they have strict qualifying guidelines for loans that many small businesses can’t meet. Alternative financing is any form of lending outside of traditional banks and credit unions.
Alternative financing is designed to deliver more options for business owners. And they are attractive due to easier access and faster funding than traditional bank loans.
Alternative Financing Options for Your Small Business
There are many alternative financing options available for small businesses of every shape and size. Here are some of the most commonly used:
1. Microfinancing
Microloans are similar to traditional bank loans but on a smaller scale, usually from $5,000 to $50,000. In 2020, 30% of SBA’s microloans were awarded to startups. However, these loans aren’t a good choice for big-ticket purchases. They also have strict requirements, so small businesses with fluctuating revenue or poor credit may not qualify.
2. Peer-to-Peer (P2P) Lending
P2P lending is an alternative financing solution that brings groups of lenders and borrowers together on an online marketplace to create agreeable financing arrangements. Lenders, who may be investors, have capital they want to invest. Borrowers will need to be cautious about the terms they accept since this is unregulated.
3. Merchant Cash Advance
This is a popular alternative financing strategy for small businesses that have receivables. Your business simply gets a cash advance in exchange for a percentage of your future sales. Even if your business has poor or no credit, it can qualify as long as it can show a history of receivables.
4. Business Line of Credit
Instead of using a business or personal credit card for your small business, a better option would be to investigate a business line of credit. Many lenders will ask that you use business assets, such as inventory or machinery, as collateral, before giving you a line of credit that you can use for business expenses.
5. Working Capital Loans
Your business may be able to access working capital loans as means to cover occasional cash flow shortfalls. These are short-term loans offered by lenders to businesses, which may be secured or unsecured.
6. Invoice Factoring
Invoice factoring is another popular alternative lending option in which you sell your invoices at a discount to a company in exchange for a lump sum of cash. The factoring company then owns those invoices and collects on them when they are due, typically in 30 to 90 days.
Schedule a Consultation With CAB Capital
Want to explore alternative financing options for your small business? CAB Capital helps small businesses access working capital and meet their goals with a variety of alternative lending solutions. Reach out to us today to schedule a free consultation.