Enjoy This Short Informative Video About Alternative Funding For Small Business Owners
5 of the best Alternative financing options
for small businesses
#1 accounts receivable
line of credit
An accounts receivable line of credit provides a line of credit based on the amount of accounts receivable a business has outstanding. The amount of financing provided to large to micro businesses is well over several billion dollars annually and is offered by both bank and non-bank sources.
Below is a short list of how an AR Line of Credit benefits a business.
Improved Cash Flow:
An accounts receivable line of credit allows businesses to access funds quickly by borrowing against their outstanding invoices.
Flexibility:
Unlike traditional loans, an accounts receivable line of credit provides flexibility in terms of borrowing and repayment.
Lower Cost of Financing:
Accounts receivable lines of credit typically offer lower interest rates compared to other forms of short-term financing, such as merchant cash advances or factoring services.
Increased Borrowing Capacity:
The line of credit is tied to a business’s accounts receivable, which represents money owed to the company by its customers.
Enhanced Credit Management:
Managing accounts receivable can be challenging, as businesses have to wait for customers to pay their invoices
Relationships with Suppliers:
Having access to a reliable source of funding through an accounts receivable line of credit can strengthen relationships with suppliers.
#2 Small Business
Invoice/accounts receivable Factoring
Invoice or accounts receivable factoring tools allow immediate access to working capital for a struggling business. This financing tool is useful for businesses facing cash flow challenges due to long payment terms or slow-paying customers. By selling their invoices, businesses can convert their accounts receivable into cash thereby transferring collection responsibilities to the invoice purchaser. By exercising this option business accesses working capital to cover operational expenses or invest in growth opportunities.
Below is a list of Receivable Factoring benefits.
Improved Cash Flow:
Invoice factoring provides immediate cash by allowing businesses to sell their accounts receivable to a factoring company at a discount.
Fast and Easy Access to Funds:
Invoice factoring provides a quick and straightforward process for accessing funds.
Elimination of Collection Efforts:
With invoice factoring, the factoring company takes over the responsibility of collecting payments from customers.
Flexibility:
Invoice factoring offers flexibility in terms of the amount and frequency of invoices that can be factored.
No Additional Debt:
Invoice factoring is not a loan, which means it doesn’t create additional debt on the balance sheet.
Potential for Growth:
By providing immediate cash, invoice factoring enables businesses to seize growth opportunities that may require upfront investment.
#3 Small Business
Equipment Leasing
Equipment leasing is a straightforward method for small businesses to access equipment and machinery requirements outside a traditional loan. This “off the books” financing gives business owners flexibility in preserving working capital for operational purposes. While leasing is a fantastic business tool, a business owner must carefully review the effects of the terms and conditions of equipment leases, including interest rates, penalties, and end-of-lease options.
Below is a list of Equipment Leasing benefits.
Conserve Working Capital:
Leasing equipment allows small businesses to conserve their working capital.
Access to State-of-the-Art Equipment:
Leasing provides small businesses with the opportunity to access and use the latest technology and equipment without the high upfront costs.
Flexibility and Scalability:
Leasing offers flexibility in terms of the duration of the lease agreement.
Maintenance and Support:
Equipment leasing often includes maintenance and support services from the leasing company.
Tax Benefits:
Lease payments for equipment may be considered as operating expenses and may be tax-deductible for small businesses.
Preservation of Credit Lines:
By leasing equipment instead of purchasing it outright, small businesses can preserve their credit lines with financial institutions.
#4 Cash advance on future receivables
and
unsecured working capital
While receivable factoring offers financing on historical invoices, a cash advance offers factoring on future receivables.
A merchant cash advance (MCA) is not a traditional loan but rather a cash advance based on the future revenue of a business. It opens doors for businesses that may not qualify for traditional bank loans due to factors related to time in business, lack of collateral, seasonality or poor credit issues. A business owner must carefully consider the costs and repayment structure associated with such financing tools.
Below is a list of Cash Advance benefits.
Fast Access to Funds:
One of the primary advantages of a cash advance is the speed companies get funded. Many times businesses are funded in hours.
Flexible Repayment:
Repayment for a merchant cash advance is typically based on a percentage of the business’s daily credit card sales or future receivables.
No Collateral Required:
Merchant cash advances are typically unsecured, which means they do not require collateral.
Simple Application Process:
The application process for a merchant cash advance is usually less complex than traditional loans.
Credit Score Flexibility:
Merchant cash advances are more accessible to businesses with less-than-perfect credit scores.
Use of Funds:
Unlike some traditional loans that may have restrictions on how the funds can be used, merchant cash advances offer flexibility in the use of the funds.
#5 Government/commercial
Contractor Funding
The working capital needs of government and commercial contractors often require unique financing solutions. Many of the issues tied to this industry include bid and proposal cost, performance cost, payroll, materials, supplies, subcontractor payments, regulatory expenses, and let’s not forget cash flow gaps. Experienced contractors understand the importance of careful working capital management.
Fortunately financing options exist specifically designed to support the industry.
Below is a list of funding options for the contracting space.
Equipment Leasing:
Contractors typically have heavy demands for machinery and equipment. This option offers flexibility in ramping up for projects.
Invoice factoring:
This is not a loan, which means it doesn’t create additional debt on the balance sheet. Funds can be accessed quickly.
Accounts receivable lines of credit:
This option offers lower interest rates compared to other forms of short-term financing, such as merchant cash advances or factoring services.
Advance On Future Receivables:
Unlike factoring this type of funding carries a high cost but the speed of funding, no collateral requirement and flexibility offers an effective solution when needed.
Purchase Order Financing:
Purchase order (PO) financing is a type of funding that helps government contractors fulfill large orders or contracts.
Mobility Contract Financing:
Similar to PO financing, mobility funding is a specific type of financing that is designed to support contractors as they execute or initiate a project agreement/contract. Construction and service base business are heavy users of this type of funding.
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