Some things will never change about running a business – time will always be scarce, and extra working capital is always useful. However, sometimes banks reach their lending limits, and cannot approve loans or extend lines of credit to business owners, leaving entrepreneurs to explore other options. In this article, we will go over a few of the many alternative lending solutions available to business owners.
A Merchant Cash Advance (MCA) is a form of alternative lending that is very popular among retail and service industry businesses that accept credit cards from customers. MCAs are easy to put together, and they do not really adhere to a payment schedule, unlike traditional loans. MCAs are an attractive alternative lending option because the money is advanced to the business, and then the loan is paid back based on a percentage of the volume of credit card sales.
Accounts Receivable Financing – or AR financing – is an alternative lending solutions that does not show up as debt on a company’s balance sheet. AR financing is used to get immediate money from unpaid customer invoices. An AR financing company or alternative lending business will buy a company’s unpaid invoices in exchange for the amount due, less fees. This is a great way for a business to get a boost to its cash flow without taking on debt.
For businesses experiencing growth strains, Purchase Order (PO) Financing is an ideal alternative lending solution to entrepreneurs who suddenly find themselves saddled with unusually large customer orders. PO Financing gives the business a cash advance to fill the customer’s order. Once the order is received by the customer, the PO Financing company bills the customer directly for the total amount. The PO Financing company then subtracts their own fees, and the remainder goes directly to the business in the form of revenue. This is a great alternative lending solution that requires no out-of-pocket money on the part of entrepreneurs – the end customer pays for everything.
Whether it is structured as a straight loan or through other alternative lending means, equipment leasing is a great way to get the resources you need to run your business, without paying a lot of money upfront for equipment. Leasing can be structured so that businesses can upgrade to the latest and greatest equipment, or with the option to buy at the end of leasing term.
There are many more alternative lending solutions to fit any business need or situation. If you own a new business and cannot get an approval on a traditional bank loan, or if your bank has reached the limits of money it can lend to your company, it would be wise to see what alternative lending options are out there for your business.