Alternative Financing Options to Save your Small Business

26 Apr, 2016 / Comments: Comments Off on Alternative Financing Options to Save your Small Business / By

The financial crisis that our country experienced recently has left many banks without the desire to lend out money like they used to do on a regular basis. Due to this, many small businesses are suffering when it comes time to get a hold of money in order to expand their business or even to save it from destruction. Rather than losing your business, consider these alternative financing options that lead you the opposite way of the standard bank, but provide you with the capital that you need.


Online Funding

If the brick-and-mortar bank turns you down whether because your business is too new, your credit rating is not high enough, or your loan amount is not enough for them to make a profit, you are not out of luck. Online funding is a growing trend that provides many small businesses with the capital they need. There are a variety of different types of online lending including lenders that simply operate online to avoid the cost of overhead, which passes the savings onto its clients as well as other options, of which the most favorable is crowdfunding.


Crowdfunding is the coming together of many people both near and far to provide a business with the money they need. You might receive a donation as small as $20 from one person and as large as $10,000 from another. The combination of all of the donations can help to give your business the capital it needs. Remember, however, there are thousands of others out there competing for crowdfunding money, so you have to make your pitch believable as well as worthy of the donors’ time.


Merchant Cash Advance

Borrowing from money that you did not yet make is another popular method of small business funding. If you use a service to process your credit card payments, you might be eligible for this type of financing. Talk to your credit card processors about the merchant cash advance program they offer. Typically, the company offers you a fixed dollar amount that they will front you and in exchange, you promise to give a specific percentage of each of the credit card sales that you make to the merchant to start paying the loan back.


Invoice Financing

There are also investors out there that are willing to purchase your unpaid invoices at a discount. For example, if an investor is willing to purchase your invoices at 90 percent of their value, you receive the cash up front and the investor takes on the debt that you are owed. When the invoices are paid by your vendors and/or clients, you do not get the money, but the investor that loaned you the money up front receives it. This way you are not liable for monthly payments as you would on a standard bank loan, but you are able to get the money you need without worry.


Trade Credit

If you have been in business for a while and have established a good working relationship with your vendors, you can ask for trade credit. In this case, you receive the goods and/or services that you use to create your product without paying for them. Once you sell your end product, you pay your vendor back for the goods or services that he provided you with upfront. This helps you to make more sales in the event that you do not have the working capital that is necessary to keep up with your consumer demand.


Alternative financing requires that you really understand what you are getting into as there are many companies out there looking to make a quick buck. Make sure that you do your research and only deal with qualified companies that have been in the business of alternative financing for a while. The internet provides a wealth of information on companies that provide these services as well as reviews on what others have to say about them. As long as you do your research and truly understand the terms and conditions of the non-traditional loan you take on, you can have the capital your small business needs right away rather than being forced to close your business’ doors.

William Mahnic
William Mahnic is a Finance Professor at Case Western University and has spent more than 20 years in the finance industry before becoming a professor. Mahnic has appeared as a commentator on both TV and radio talk shows including NPR, Crain's Cleveland Business, WKYC 3 and The Washington Post. He has been interviewed in BusinessWeek, Wall Street Journal and The Los Angeles Times.

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