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Alternative Funding Solutions a Small Business Needs to Know
It does not matter if you have been in your business for a long period of time or you have just started, as the owner of a small business, you will be bound to come across the number of situations where you are going to require immediate funding solutions. While most of the entrepreneurs consider traditional loans as the perfect solution for all the financing issues, banks may or may not be interested to help the owners of a small business. According to www.forbes.com, big banks approved around 26.5% loan applications in the month of August, this year.
But it was almost impossible to get past their strict and stringent policies. Also, if you see that your business is reaching a point where it is unable to fulfil all the stringent criteria that the banks have set, the options that you will consider is maxing out the credit card, selling all the personal assets, stealing from the retirement fund, or borrowing huge loans against your office or home.
Well, it is true that these options can be considered but a number of other funding solutions are also there. It is always best to go for the alternative solutions instead of tapping into the savings that you have or keeping your home or office at stake which is a common mistake business often make.
If you're hamstrung financially without access to finds you you can consider the following solutions for your small business needs.
This kind of lending involves making use of the assets that small business owners are intending to purchase as collateral for the total loan amount that they are going to borrow. This means that the company that finances the assets remains the owner of the assets that you purchase until your last payment is completed. With the help of asset financing, you have the freedom of choosing hire purchase or the lease purchase.
Hire purchase is known to include your asset on the balance sheet and in lease purchase; the asset is not included in the balance sheet until and unless the complete amount is paid together with your purchase fees.
Lines of credit
This particular kind of funding solution allows the businesses to pay for all the short-term expenses that include, purchasing important pieces of equipment, covering the operating costs, expanding the inventory, and much more. Lines of credit are known to work in a similar manner as the credit cards. You will be allowed to access certain funds, which you have the option of using according to your wish.
Regular payments will be released by the company that you have chosen and you will also have the option of withdrawing the amount of money that you require. Interest will be charged only on the basis of the total money that has been withdrawn by you. You need to understand that the interest rates that are levied on the line of credit are a little high in comparison to the prime rates of taking a loan, but it is definitely lower in comparison to the rates of a credit card.
Another solution that most of the small businesses take into consideration is invoice factoring. This financial solution is ideal for those companies that sell B2B products or services. In this kind of financing, invoices will be directly issued to the customers and clients and the copy of the invoices will be sent over to your lender. As soon as the lender receives the copy of the invoices, a percentage of the total value of the invoice is paid to the organization.
As soon as the payment is received from the customers or the clients, the lender will pay the remaining invoice value after deducting all the fees that are applicable. To know more about clearing your loans easily, you can visit libertylending .
Merchant cash advance
Another interesting business funding solution that you should have proper knowledge about is merchant cash advance. A number of small businesses are making use of this particular funding solution as opposed to taking traditional loans. The merchant cash advance is normally secured after a lender has inspected the cash flow of a company and declares it to be a steady and positive flow.
This kind of funding is for the secured future transactions that will be made through a credit card. This makes it an extremely smart alternative to various traditional options of financing, particularly for the small businesses that do not have proper collaterals or credit ratings for securing the bank loans.
Purchasing order as well as trade finance
The small businesses do not usually find the production of goods as well as sales a huge challenge. The challenge arises when they are trying to locate finance for procuring the raw materials. By opting for this method of financing, the producers, wholesale suppliers, or the distributors will be able to grow their respective businesses without increasing the selling equity or the bank debts.
This is a flexible and fast option of financing and this solution has permitted a number of businesses to fulfil huge orders, thereby bagging more profit. Moreover, the businesses have been successful in making timely deliveries as well as increasing the market share.
The businesses that are still in a struggling stage but are viable, often require financial assistance. These kinds of businesses can turn to the equity finance organizations for a turnaround. In order to affect the turnaround, companies will have to identify the problems and acknowledge them in the first place. After this, they have to make a number of changes in their management policies and implement a proper strategy that is going to work.
Turnaround finance is only capable of helping those companies, which have business models that are proven as well as have a history of stable revenue. This kind of funding solution is going to be useful for those businesses that have temporary problems that are caused by a disruption in the cash flow or the credit restrictions. Few instances of these kinds of problems include a sudden decline in the stock price, losing major clients, delayed salaries and creditor payments, and layoffs.
Find a financing solution that suits you
Most of the banks are known to have strict criteria that all the businesses have to go through before a loan is approved. This is why most of the owners of small businesses find it crucial to raise a proper fund for the working of the company. Instead of going for the traditional methods, it is best to consider these solutions for your small business.
If financing is still hard to come by but you're still adamant in running a startup then why not look at low capital intensive business ideas, build an income stream and expand organically.
About the author
Isabella Rossellini is a marketing and communication expert. She also serves as a content developer with many years of experience. She has previously covered an extensive range of topics in her posts, including business and start-ups.
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If you enjoyed this post and have time to spare why not check out these related posts and dive deeper down the rabbit hole that is running a startup.
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