Alternatives if the Banks Say ‘No’

Alternatives if the Banks Says 'No'

Sarah owns a small printing business and needs additional capital to purchase new equipment and to hire an extra sales representative. She approached her local bank for a traditional small business loan and was declined. Devastated, Sarah doesn’t understand why her successful business can’t secure a traditional bank loan.

Unfortunately, this happens more than you would think. Small businesses are often unable to secure traditional loans to fund growth and get needed cash for expenses.

That’s where alternative financing can greatly benefit small business owners.

With so many alternative financing options available, your small business can find the capital you need to grow, fund research and development, increase inventory and pay your expenses.

Here are the top 5 alternative financing sources for your small business:

  • 1. Invoice Factoring – this is one of the best options for small businesses with money tied up in accounts receivable. An invoice factoring company, such as American Receivable, will purchase your current, outstanding invoices and give you a percentage of the value. When American Receivable collects payment on the invoice from your client, you receive the remaining amount due on the invoice, less a small factoring fee. Invoice factoring gets you the cash you need right away! A true advantage of this alternative financing option is that your eligibility is based on your client’s ability to pay, not your company’s credit rating.
  • 2. Personal Loans – These allow you to use your personal credit score and household income to get money for your business. A personal loan will be smaller than a business loan but can give you some alternative financing for your new small business.
  • 3. SBA Loans – Loans from the SBA are guaranteed in part by the Small Business Administration. SBA loans are originated by traditional loan producers, but a portion is guaranteed by the SBA if you default. It allows a small business who otherwise would not qualify for a loan to get needed funds. The downside is that an SBA loan can have a lengthy application process, and it can be difficult to qualify.
  • 4. Business Credit Cards – These accounts allow you to pay for business expenses without applying for a loan. You can even earn rewards and build your business credit score. It’s a bonus if you can find a card offering an introductory 0% APR for the first year. The downside is keeping a running balance for the long term can add up to higher costs owed if you are not careful.
  • 5. Business Grants – These are the most difficult form of alternative financing to come by, but if you find your business qualifies for a business grant, you get free money to fund your business. Many business grants are government funded and geared towards veteran and minority-owned businesses.

Invoice factoring provides short-term capital in exchange for selling and assigning invoices to a factoring company (referred to as a factor). The factor advances you 80% of your invoice value. Once the invoice is paid, the factor pays the remaining 20% (minus fees). Invoice factoring is generally available to businesses that do a lot of business-to-business (B2B) or business-to-government (B2G) invoicing.

Preceding having the option to get calculating financing, you should discover a considering organization you need to work with and afterward experience the application procedure. The factor will decide whether you meet the qualification criteria to get financing and direct due persistence on the clients you’re invoicing to check whether they are great credit dangers. 

In the event that the factor chooses to support your business dependent on that examination, you and the factor will consent to a financing arrangement. The understanding will set an underlying most extreme dollar sum that you can get, which is the greatest figured sum extraordinary at some random time. 

When you have a figuring relationship set up with a factor, you will sell them the majority of your extraordinary solicitations. When you present a receipt, the factor will audit the receipt for qualification and issue the development.

Invoice factoring is a type of accounts receivable financing that converts invoices due within 90 days into immediate cash for your small business. The factoring company will typically pay out two installments for your invoice: an advance of 80% of your invoice and the remaining 20% (minus fees) after the invoice is paid.

Though similar, small business invoice factoring is not the same thing as invoice financing (or accounts receivable financing), although the terms are often used interchangeably. Invoice financing is more streamlined, easier to use, and doesn’t require the assignment of invoices like factoring does. Additionally, an invoice financing company like American Receivable can work with business-to-customer (B2C) invoices.

Invoice factoring is typically a solution for short-term cash flow problems. It is frequently used as a way for businesses to simplify their cash flow conversion. Factoring financing is most often not used for big capital investments.

Good News for This Small Business Owner

Sara contacted an invoice factoring company and was able to get the cash she needed to fund payroll and new equipment. With the increased sales from the new sales representative, she was also able to apply for a line of credit. Alternative financing options worked for Madeline’s small business. Which one will work for yours?