Here are 6 alternative funding options for your small business, most of them 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 solution are bound to arise. This is usually experienced when you are just starting out in the business world.
The usual way out for many entrepreneurs is to seek for 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?
Enter alternative funding options for small businesses.
Many small businesses that have been thrust unceremoniously into financial problems have had to utilize non-traditional business loans as well as 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 practice of factoring. However, it is a bit different in the sense that it goes one step further.
They undertake the order of the buyers of the company’s products. They also pay for the manufacturing of the product and then take their cut while they allow the company to take the rest of the proceeds.
That is an excellent alternative financing option that you should seriously consider in your quest for funds.
Hard Money Loans
A hard money loan is seldom used as it is an asset-based and risky loan that is based primarily on the collateral of the borrower, that is you in this case. All the same, it does not depend on the creditworthiness of the business that is applying for the loan.
Merchant Cash Advances
When your company secures a merchant cash advance, the deal has to do with the purchase as well as the sale of 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 that you want to raise on a peer-to-peer lending platform or site as well as the maximum amount of interest that 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 are expected to have an excellent personal credit score.
Use Your Inventory to Raise Money
You can make use of your inventory as collateral to enable you to raise the money that is required as your working capital.
Inventory financing, as well as accounts receivable financing, are two vital sources of money that businesses – especially those involved in the importation of products – can make use of extensively.
Both of these sources of money can also be used for other reasons for your company.
The Use of Credit Cards
Credit cards though not widely used here in Nigeria is one financing option small business owners can leverage to fund their operations.
However, you may want to fist talk to your financial provider to see how they can extend a credit card facility for you.
Keep in mind though, the interests 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 which small businesses can take advantage to secure the money they need to stay functional.
However, if you must follow this route, you need to make sure 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.
The beautiful thing about this is the fact that you do not have to rely solely on traditional loans for your business to continue operating.
These alternative funding options for small business are there for you to explore.
It is also an excellent means of providing competition for traditional financial institutions, which may help to boost the credit markets where most small businesses usually obtain their financing.