Running a growing business can be daunting, and funding that growth is one of the most daunting. The current state of our economy can make it seem impossible to obtain a business loan or financing. This situation puts much pressure on you as a business owner and the business to thrive and succeed.
There are alternatives if you struggle to get business funding and don't like your current options. In this article, we will break down the top alternative business loans in which you can fund your small business so that you can grow like never before.
What is an alternative business loan?
Any form of financing not included in the more conventional options provided by banks and other traditional funding organizations is known as alternative funding, as the name suggests. Alternative business loans can consist of crowdfunding, private loans, angel investors, and venture capitalists, among other types of financing.
Funders from secure traditional bank loans, investors, or lines of credit typically view small businesses as high-risk ventures. So, business owners frequently need to look into alternative finance for small enterprises. Small business entrepreneurs may find it challenging to obtain a loan from a bank due to their limited assets and short credit histories.
Many alternative funders could provide fast working capital in just a few days, unlike most banks and traditional funding sources that may take weeks or even months to accept or deny a loan application. Usually, a credit score, tax returns, and bank statements are needed to submit a request for alternative funding; a thorough pro forma or business plan is not usually required. In some instances, all necessary to get a funding offer is essential information about your business and bank statements for the last few months. They do, however, tend to have a minimum time in business (as low as three months in business).
Benefits of choosing an alternative business loan
A few reasons and benefits to choosing alternative business loans are the following:
It could be simpler to qualify: Since they are just starting, not all small business owners are eligible for standard loans because they do not meet the additional requirements. Alternatives for business loans are helpful in these circumstances.
Fewer requirements: Although it varies depending on the funding provider, traditional banks often turn down loans from clients whose credit scores are below a particular level, typically between 600 and 650. With alternative funding, your credit score is not the end all, be all!
Faster approval: While the approval process for traditional bank loans might take weeks, several alternatives for business loans allow you to access funds in as little as one week.
Types of alternative business loans for small businesses
If the benefits mentioned before sound like what you are after, we will describe common types of alternative business loans that you can apply to in the following sections.
Short-term sources of finance, which have a payback duration of less than a year, are referred to as short-term financing. You can use short-term finance for one-time purchases or lump sums of money, and it's unlikely to utilize the same short-term funding source more than a few times as a borrower. This financing is a good option if you need a one-time influx of working capital for a specific need within your business. You need to know all the advantages and disadvantages of short-term financing.
Lines of credit
A business line of credit for new businesses can help owners keep regular access to working capital or finances to tame fluctuations in costs and income.
Nonetheless, there are many differences between regular loans and lines of credit. For instance, with a line of credit, you tend to get smaller amounts of money, but you don't have to specify what you'll use the money for. Learn more about the differences between a business line of credit and a regular loan here.
Also referred to as invoice factoring, a business sells its invoices (or receivables) to a third-party financial company, often known as a factor, in an invoice factoring transaction to get business funding.
You get the money first, then sell a portion of your unpaid invoices to pay the factoring business back. This prevents the damage typical bank financing would have done to your credit because it's a sale rather than a loan. Long before their clients pay their bills, small firms can access the cash worth of their invoices. Read more on invoice factoring for small businesses.
Merchant cash advances
A merchant cash advance is not a loan. It is a genuine advance on a company's anticipated future revenue, with benefits and downsides that differ from conventional loans. Simply put, money is advanced to your company and withdrawn immediately into your bank account as repayment based on the expected performance of your business.
This is a fantastic option for small businesses that don't have a perfect credit score and need money fast to put to work fast—interested in this option? Read our guide on how does a merchant cash advance work?
Find the best option to finance your business.
Considering all these options is the best way to make the wisest decision for your business, but you don't have to do it alone. Experts by your side will help you check more accessible alternatives for your business and its needs. With One Park Financial, you get access to a network of funding sources that offer the most flexible approval terms on this list, such as merchant cash advances.
How do you know One Park Financial is the team for you? If your business has at least three months and generates $7,500 in monthly revenue, our team of professionals will be more than happy to help you find the proper alternative business funding you need. Getting started is painless and easy; learn if you prequalify for financing by filling out our online form today.
Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction.