3 Alternative Financing Options For Small Businesses
Are you a small business owner that has been turned down by the bank for a traditional business loan? If so, you may find yourself struggling to expand or even keep your business open without the immediate cash flow that you require. Thankfully, there are many alternative financing options that can help you get the cash you need. Below you will learn about three of the most effective options that you may have available to you.
Option #1: Invoice Factoring
As your business begins to grow, you will likely begin to accumulate future earnings. These future earnings are often the result of long term contracts with your customers in which you are guaranteed to receive a payment each month for services rendered. In business accounting, these future earnings will often be referred to as accounts receivable or invoices. Invoice factoring will allow you to collect on these future earnings right now rather than waiting until the customer pays their debt.
When selling your future earnings, you will receive an immediate lump sum from the investor who chooses to purchase these earnings. In return for a small reduction in the total value of these earnings, you will receive the benefit of immediate cash flow and also reduce the risk of these future earnings not being paid as expected.
Option #2: Private Investors
Traditional lenders, such as your local bank, will typically have very strict guidelines regarding who they can and cannot loan money to. Consequently, it can be quite difficult for many small business owners to get the financing they need through these lenders without substantial collateral or a very impressive business proposal.
Opening up your business to private investors will often yield much better results. This is because private investors have the ability to judge each potential investment independently rather than relying on a lending rubric that must be followed to the letter.
Option #3: Credit Cards
Credit card companies are often far more willing to extend an unsecured line of credit to small business owners than a traditional lending institution will be. Therefore, this financing option can provide a quick and easy solution when making relatively small purchases or covering a portion of your overhead costs.
In order for a credit card to be issued in your company name, you will first need to legally establish your company and effectively separate your personal credit from your business credit. In most cases, this will require you to either form an LLC or incorporate your small business.
Small business financing can be tricky, but the ideas above can be a good starting point.