Small Business Alternative Lending Options
When you are first starting out, your small business may have trouble acquire financing through traditional methods. A lack of credit history or a low score can make it difficult to qualify for a bank loan and can result in higher interest rates and less favorable terms. Luckily, there are several alternative lending options that you can use.
1. Lines of Credit
A line of credit is similar to a credit card in that you have a set limit and can draw from this whenever you need the extra cash. Once you have paid this back, usually through monthly payments, you are able to use it again as needed. This can be especially helpful to a small business as it can also help improve your credit score.
2. Merchant Cash Advance
A merchant cash advance or MCA is usually easier to receive than a traditional loan. It allows you to receive an upfront sum that is paid back based on your company’s sales. This may be preferable if you are going through a slow period because you pay a percentage instead of a fixed amount. If your sales are lower, so is your payment.
3. Business to Business Lending
These loans are similar to a traditional bank loan in the way that they are paid back. The difference is that you are borrowing money directly from investors. In many cases, the process is completed more quickly and the requirements may be more lenient.
4. Invoice Financing
Another alternative lending option that allows you to receive your money more quickly is invoice financing. Like an MCA, this type of lending is based on your sales. The difference is that this one uses past sales instead of future sales. The amount you receive will be a portion of your outstanding invoices which act as collateral.
5. Equity-Based Crowdfunding
While it is not for everyone, something else to consider is equity-based crowdfunding. With this type of financing, you receive funds in exchange for a share of your business. Because this affects your ownership, you should weigh the pros and cons carefully to determine if this is a good choice for you.
When you are unable to receive traditional financing, it can be helpful to have other options. However, with so many types of alternative lending, it can be difficult to figure out which one is right for your business. There are benefits to each as well as some downsides. It is important to consider all of these before making a decision.
