When you’re running a small business from home, it’s common to be bootstrapping and keeping costs as low as possible so that you build your venture slowly and don’t have to worry about forking out huge amounts of cash to rent or buy premises.
However, no matter how lean you operate your organization, there will likely come a time when you need to get access to small-business funding, either to start your venture or a new arm of it, or to cover you over a particular period, or help you expand in some other way. If you’re at this point now, it is important to remember that there isn’t just one type of finance option to utilize these days. Read on for some of the financing forms you might want to consider as an alternative to a traditional bank loan.
Over the last decade or so, a whole raft of boutique and large online lenders have cropped up, many of which are directly targeting small businesses that need access to funds quickly, and who may not have the traditional trading history or collateral most banks require.
A popular alternative to standard business loans, these types of platforms can arrange for applications to be signed off in mere hours or minutes, as opposed to days or months, and can be perfect for businesses that haven’t been trading for long.
If you operate the kind of firm whereby most of your income comes through customer account payments, invoice factoring may be just the kind of funding option you need. Also known as accounts receivable financing or debt factoring, this type of financing involves selling your venture’s outstanding future invoices to a factor. The benefit of this is that, instead of having to wait for your customers to pay their accounts (which are often settled late and can cause huge headaches), you get access to cash straight away.
Once you are approved to deal with an invoice factor (to do this they will likely examine the type of business you run, if you have credit-worthy clients, and if you have any outstanding legal or tax issues), they will typically pay you an advance for the value of your invoices up front (around 80 percent), and then give you the balance, minus their fee, once your original customer has paid off the bill.
Merchant Cash Advance
Another alternative finance option is a merchant cash advance. Merchant capital companies (and some banks and other lenders) will advance you funds which you can use straight away, and then pay back via a portion of your venture’s future daily credit and debit card sales. Funds will be automatically deducted every day from your merchant account until the advance has been paid off.
This type of financing (also known as credit card receivable funding) is very helpful if you and/or your business has a poor credit history. The lump sum you receive up front can be used for many different types of business purposes, and you’ll usually find that advances can range between $2,000 and $250,000. However, note that merchant cash advances do tend to be one of the most expensive funding choices available, and they’re not usually very flexible either.
If you need access to cash for your business because you want to purchase an expensive piece of equipment or machinery, the best option for you could be equipment financing. This is organized when you use a specific equipment loan to finance part or all of the cost of new or used equipment and machinery. It is best for times when you want to buy something that won’t need to be updated frequently, and where you prefer to purchase it outright rather than leasing it.
Equipment loans are typically fairly easy to qualify for, plus it’s unlikely that you’ll have to put up any additional collateral since the machine or equipment itself acts as this. However, be aware that this type of financing usually comes with high fixed-interest rates, so while you won’t have to come up with so much money upfront, you can end up paying more over the long term.
Depending on what type of business you operate and the industry it’s in, plus what you want to get funding for, you might be able to get a government grant to help you build your venture. Various programs are run at the local, state and federal government levels to support new or expanding small businesses, with each program having its own set qualification criteria. The Small Business Administration (SBA) tends to be the largest source of federal funding for small ventures.