Here are 6 alternative funding options for your small business; most do not require any collateral, nor do they require you to have a high personal credit score.
As a small business owner, situations in which you will need immediate funding solutions are bound to arise. This is usually experienced when starting out in the business world.
The usual way out for many entrepreneurs is to seek a traditional loan. Many startups believe this is the perfect solution to business financing problems.
However, most banks and other financial institutions are not always interested in providing help for small business owners.
So, what can you do if you find yourself in this situation?
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Enter alternative funding options for small businesses
Many small businesses thrust unceremoniously into financial problems have utilized non-traditional business loans and business credit.
While these sources may not be ideal for every type of business, they are viable options that will keep your business moving in the right direction.
The following options can also be explored if you are unqualified for a bank loan or bank line of credit:
Invoice (Purchase Order) Financing
Invoice financing – or purchase order financing – follow the old factoring practice. However, it is a bit different because it goes one step further.
They undertake the order of the buyers of the company’s products. They also pay for the product’s manufacturing and then take their cut while allowing the company to take the rest of the proceeds.
That is an excellent alternative financing option you should consider seriously in your quest for funds.
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Hard Money Loans
A hard money loan is seldom used as it is an asset-based and risky loan based primarily on the borrower’s collateral, that is, you in this case. It does not depend on the creditworthiness of the business applying for the loan.
Merchant Cash Advances
When your company secures a merchant cash advance, the deal has to do with purchasing and selling future credit card income.
There are no regular fixed payments that are required by your organization. The lender will only collect a predetermined percentage of your company’s daily credit card sales.
Merchant cash advances do not have a fixed interest rate, though they can be pretty expensive. However, the primary goal is achieved as your small business will remain and continue to be in business.
Peer to Peer Financing
The peer-to-peer transaction is akin to how eBay transaction works. All you need to do is post the amount you want to raise on a peer-to-peer lending platform or site and the maximum amount of interest you are willing to pay.
Then, you wait until prospective lenders bid on the loan you need and posted on the site. However, for this to work seamlessly without any hitches, you should have an excellent personal credit score.
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Use Your Inventory to Raise Money
You can use your inventory as collateral to enable you to raise the money required as your working capital.
Inventory financing and accounts receivable financing are two vital sources of money that businesses – especially those involved in the importation of products – can use extensively.
Both of these sources of money can also be used for other reasons for your company.
The Use of Credit Cards
Although not widely used here in Nigeria, credit cards are one financing option small business owners can leverage to fund their operations.
However, you may want to first talk to your financial provider to see how they can extend a credit card facility for you.
Keep in mind, though, the interest accruable in this form of funding may be higher than what you can get if you had used another financing option.
But it remains a viable option that small businesses can take advantage of to secure the money they need to stay functional.
However, if you follow this route, you must ensure that all payments are made on time. You should also try and negotiate with your credit card company to see if you can get the lowest possible interest rate.
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Wrapping It Up
The beautiful thing about this is that you do not have to rely solely on traditional loans for your business to continue operating.
These alternative funding options for small businesses are there for you to explore.
It is also an excellent means of competition for traditional financial institutions, which may help boost the credit markets where most small businesses usually obtain their financing.
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