Explore these Avenues to Maintain Healthy Cash Flow
Financing for small businesses can be difficult to obtain through traditional lenders. Most banks require you to have excellent credit and high annual revenues. They also require your business to have been in operation for more than two years. Even then, most banks approve less than half of the small business loan applications they receive. Big banks approve only about a quarter of them. Fortunately, there are other places you can go to finance your small business.
Small Business Administration Loans
You might also be able to get help from the Small Business Administration. Their loans are guaranteed in part by the government, so you can get a loan more easily than from a bank. They also offer very low interest rates. You can even get a very small loan to cover an emergency, making repayment much easier. The drawback is that the application process is lengthy.
Accounts Receivable Financing
Sometimes a cash crunch occurs because your customers are slow to pay their invoices, or because your company has landed a large contract and now has the added expense of delivering the product but you are not able to collect from the client immediately. If this is your situation, you can make your unpaid invoices work for you with a factoring company that will purchase your invoices. The factoring company will give you an advance amount on your invoices and when the client pays them in full, they will pay you the remainder minus their factoring fee. Accounts receivable financing, also known as invoice factoring, can be a relatively quick and easy way for you to get an influx of working capital into your business.
Online lenders offer financing loans similar to those of banks, but they differ in some important ways. They usually have less strict requirements for credit score, annual revenue, and length of time in business. They also make loan decisions faster. The drawback is that online lenders usually have higher fees and interest rates.
Merchant Cash Advances
A merchant cash advance functions a lot like a loan, but is not a loan. Instead, it is an advance on your business’ future credit and debit card sales. You repay the advance with a percentage of your sales each day. There is usually no deadline to repay the advance. The advancing company will simply take a cut of your sales until the advance is repaid. Merchant cash advances can end up being a lot more expensive than a bank loan, though so proceed with caution.
An angel investor is a company or person willing to give your company a loan as an investment. Online peer-to-peer lending has made finding angel investors much easier than it used to be. However, it can still be difficult to find one. To maximize your chances of convincing one to invest in your business, you need a solid business plan and an excellent pitch.
Online crowdfunding sites give you an opportunity to get a little bit of money from each member of a large group of microinvestors. In exchange for funding assistance, you offer your microinvestors something in return, such as a free product or service. There are no applications, collateral, credit concerns, or repayment terms. You simply need to concentrate on making an effective pitch.
The Bottom Line
When it comes to small business financing, you have a number of creative, nontraditional options at your disposal. Even if you do not qualify for a bank loan, you can still get the money you need, possibly on better terms than a bank would offer.
About Universal Funding
Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days.