Alternative financing is becoming popular with small businesses around the United States. There are several reasons why: simple applications, low credit score requirements, fast funding, and significant flexibility, among other benefits. When you choose an alternative lender, it just means you’re looking outside the traditional bank program with long-term loans and high entry requirements. Sometimes, coloring outside the lines can be a great way to help your business grow.
Main Types of Alternative Financing
You have many options for getting funding. There are at least four different programs designed for small businesses and other companies. In no particular order, the options are accounts receivable fn exchange for immediate capital. Once you sign up for the program, you essentially outsource your accounts receivable department. You continue billing customers, but instead of waiting the full 30 or 60 days to get paid, the lender provides most of the money in about 24 hours. The rest is deposited in your account after your customers pay, minus a small percentage.
The benefit of AR financing is that it frees up time for you to focus on your business. It also improves your cash flow, making it easier for you to buy inventory, equipment, and other items whenever you need them — not whenever your customers get around to paying you.
Single-Invoice Factoring
This is similar to accounts receivable financing, except you submit one invoice at a time. This program is more flexible because it lets you decide which bills to factor in and which to collect on normally. It’s a little more hands-on, but it can save your business money if you manage it properly.
Asset-Based Lending
You can use business assets as collateral for a short-term loan. This option can help you cover emergency needs, take care of payroll, repair equipment, or get money for countless other things. Many ABL programs rely on inventory as collateral.
Purchase Order Financing
Use purchase orders to get raw materials for manufacturing or finished products for your customers. Ship on time. Never worry about inventory backlogs or angry customers again.
These four types of financing are short-term solutions to increase your working capital and business capabilities. They’re more comfortable for lenders because they involve less risk. In turn, your company can benefit from getting a sizable loan without having to jump through the hoops of conventional loans.
