How Alternative Lending Can Help Your Business
Large or small, most businesses experience times of struggle during economic instability. When sources of traditional lending are no longer easy to come by, your business may need to branch out to maintain your cash flow and secure financing that works for you. Here are several methods of alternative lending to consider and prepare for.
Factoring and Auctioning Receivables
Factoring is an especially popular type of financing for businesses in need of quick cash. This method may be the most viable when you’re in a time crunch. Unlike a traditional bank loan, factoring works quickly by the sale of account receivables to a purchasing factor. This allows your business access to funds without the delay of waiting on compensation from customers. Because the factor is taking on the risk of waiting for invoices to be paid, there are generally higher fees and interest rates involved.
Similarly, auctioning your receivables is a type of alternative lending that allows quick access to capital. With more price control and competition, you have the potential to secure a deal at a higher bid than most factoring arrangements. One difference from factoring to keep in mind is that you may be required to continue managing your own bookkeeping.
Equipment sale-leasebacks between businesses and lenders can be a great alternative when you’re utilizing a lot of equipment or machinery. If you’re willing to give up ownership of your equipment while still being able to use it, quick cash is available to be used as you need it. It’s important to evaluate which pieces of equipment have the most future value to determine if leasing is the right way to go.
Cash Advances and Purchase Ordering
Short-term loans, or merchant cash advances, are particularly advantageous for businesses relying on credit card payments. Lenders deliver a loan based on monthly receivables that is paid off through portions of future sales. In exchange for releasing part of your receivables, you don’t have to worry about meeting payment deadlines. Purchase order financing is another form of advanced cash that allows you to fill customer orders without waiting for payment. The steep fees involved in this type of lending may be worth the security of having the materials at hand to make a sale.
Finding the best form of alternative lending to escape the confines of bank loans requires weighing the pros and cons of each option. Keep yourself informed of all the resources available to you so you can make the most beneficial and profitable move for your business. Contact us to learn more!