Often times when a small business is in need of money they can find themselves in a sticky situation. The most common response for these businesses is to approach their banks for a traditional business loan. Unfortunately, banks will not approve these loans if they present too large of a risk. Without these bank loans as an option, small businesses can find themselves scrambling for other options of financing. However there are still numerous alternative financing options for small business.
Alternative Financing Options for Small Businesses
The first option a company in this position has is to sell a portion of their company. By selling part of the company’s ownership small businesses can acquire the necessary money they need to perform their duties. However, there are downsides that accompany this option. For example, a small business may be forced to sell part of their ownership for less than its value. Since the business is desperately in need of the money to operate, they can feel there is no other option. If they choose this option it brings with it the lasting effect of losing equity in their company. In the long run this choice could end up costing them a large sum of money.
Another option a small business has in this situation is factoring. Businesses that are in desperate need of immediate cash flow can sell their accounts receivable to a third party at a discount. This allows the small business to instantly achieve the necessary cash. However, it requires them to take a loss in the profit they would have otherwise received. Companies that choose this option have a hard time maintaining business in the future without resorting back to factoring again. Alternative financing options for small businesses, such as factoring, can help alleviate cash flow issues you may be having due to waiting for accounts receivable.
High Risk Revenue Based Business Advance
Arguably the best option for small businesses in need of immediate capital is to seek a high-risk business advance. Where the bank could not help, companies that provide high-risk business loans can. These companies specialize in providing capital for small businesses that otherwise would not be able to obtain it. Contrary to selling a portion of the company or factoring out their accounts receivable, this option allows a short-term solution for small businesses to receive the necessary capital without suffering in the long run. Since these high-risk lending companies are willing to take chances that banks are not, the rates are higher and the terms much shorter. Repayment is usually in the form of an ACH debit daily from your business bank account.
Regardless of which way you decide to go, alternative financing options for small businesses are plentiful and worthwhile researching if you cannot secure capital from a bank.