5 Alternative Financing Solutions For Businesses

One of the toughest things to do when starting or growing a business is to look for the financing/funding. Not everyone has the luxury of having the necessary capital to develop their business ideas, and many small businesses face the problem of not qualifying for a bank loan.

Here’s a look at some other ways small business owners might be able to find financing for their business without going to a bank:

Sources Of Financing Solutions

Some alternative sources of business financing include government-assisted loans or grants, business financing platforms, alternative financiers and licensed moneylenders. You can even seek out other types of financing solutions from banks that aren’t loans. Each funding source may also provide various forms of financing solutions.

Overdraft Facility – this is a credit facility that is provided by banks that allows you to write cheques or withdraw cash from ATMs. Interest is payable on the amount you draw over the set limit.

Invoice Factoring – Factoring is the sale of account receivables. Businesses can sell its accounts receivable (i.e. invoices that are due at a later date) to a financier at a discount. This allows the business owner to convert an invoice issued with terms into cash immediately and is a great method for easing tight cashflow.

Merchant Cash Advance – Cash advance providers offer businesses a lump sum in exchange for a share of their future sales. They directly collect a set percentage out of a business’ daily credit card sales until they recover the cash advance amount plus the cost of the advance.

A merchant cash advance is more suitable for businesses that have strong credit card sales, such as those in the retail and F&B businesses.

Alternative Financing – alternative financiers help to bridge the gap for businesses who may not qualify for bank loans. These financing platforms may use crowd-lending methods, otherwise known as Peer-to-peer lending to raise funds for businesses. These are usually shorter term loans are might be more flexible on the loan terms depending on your credit history.

Debenture Loans – debenture loans are loans where companies pledge their existing assets as collateral. If your company has assets that have been fully paid-off, such as equipment, machinery or property, you can leverage on them to apply for debenture loans.

What To Look Out For When Choosing A Financing Solution

Many business owners may only look at the cost of financing as a way to choose a suitable financing solution. However, other factors such as eligibility requirements, minimum loan term, speed of getting the cash, pre-payment penalties and extra fees chargeable should be considered as well.

One important point to consider is the way your interests are calculated. The amount of interest payable can vary widely depending on how it is calculated – whether it is simple interest, effective interest rate or amortized interest. It’s best to request for a repayment schedule to know the exact amount you’d need to repay each month.
Business owners can have many ways of looking for financing instead of turning to a bank loan. What’s important is to ensure that the financing solution you choose matches your business needs utilise the funds optimally to fuel business growth.