• Angelo Jade Rivera

Alternative business loans

Updated: Nov 19, 2018

Alternative loan options have become sort of norm in the small business world in the recent days since the economic crash of 2008. This wave of transition from traditional bank loans was simply a result of cause and effect as small business owners can’t meet the stringent borrowing requirements to qualify for additional funding. When financial institutions and banks are turning small businesses away, nimble business owners are turning to alternative lenders who offer various types of comprehensive lending solutions. Below are some of the most popular and trending alternative loan options available to small business owners.

Invoice Factoring

For some small businesses it doesn't make sense to go through a bank for traditional loans. Some businesses aren't in a situation where they can put more debt into their books. With invoice factoring, instead of adding debt, you are selling your receivables to the lender in return for working capital. Instead of waiting 30, 60, or even 90 days to be paid, you can pull the funds out immediately for any type of day to day expenses. The application process is much quicker, and the approval rates are also much higher than traditional loans from a bank. Also known as invoice financing or AR financing, your business in many cases can be funded in just couple of days.

Line of Credit

This type of financing is a revolving account much like a credit card. This option is best suited for a business that is looking for flexible short-term financing. Much like a credit card, the lender will assign a preset credit limit and you may take anything below that limit on as needed basis. The portion that you take out will be considered the “loan” and you will only be charged interest on that amount. Once that loan amount has been fully paid off, your original credit limit will be available again for use. Line of credit may come with higher fees and interest rates compared to traditional loans, but many business owners opt to have this option for flexibility and ease of access to necessary funds.

Merchant Cash Advance “MCA”

This is one of the most popular type of financing that has arisen since the financial crash in the past decade. If your business takes payments in the form of credit cards, you may be eligible for MCA. One important thing to remember is that MCA is not actually a “loan”, instead it's a cash advance based on the volume of your credit card receipts. Unlike a traditional loan from a bank, the lenders of MCA won't focus to much attention on business owner's credit history. More of the focus goes behind the type of business, how long has the business been running and the volume of credit card processing. One of the major perks behind MCA is that your payback is made of a percentage of incoming credit card transactions. Therefore, on days with lower credit card revenue you will only pay a percentage of that total. Contrarily, when business is booming you will also be paying the same percentage of the higher total transaction. This method of repayment allows predictability in regard to cash flow on any given day.

Working Capital Loans

This is an option many businesses may need in certain months or seasons out of the year. It is a short-term loan that is designed to cover day to day business expenditures such as payroll, inventory, advertising, and any operating expenses. This type of loan becomes most useful when the business is going through a time when its revenue doesn't meet the demand of operations. It's not only useful but for many businesses it’s imperative because it covers certain time period when more money is going out then coming in. This type of loan has terms that range from just few months to about a year depending on industry type, time in business, owner's credit, cash flow and business revenue. Major perk with this type of loan is simple application process, with certain lenders you could get approved and funded within just 1 to 2 days.

Equipment Financing

This is also a very popular type of financing because the loan can cover many different types of “equipment”. Just about any type of item that your business needs, large or small, this loan will cover if it’s not for working capital. In most cases a UCC filing will be filed against the business to cover the equipment until the loan is paid off in full. One of the major perks behind this type of loan is that since it’s considered a secured loan, there are many competing lenders out there that's willing to give you the funds driving down the rates. Equipment financing can be valuable when you know it will generate revenue for your business immediately and doesn't tie up your working capital towards it. It also greatly benefits your business's credit.

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