Smartest Options for Alternative Business Funding
Conventional business lenders can offer the lowest rates and safest loan terms, but alternative business funding can be easier to secure for the small or struggling company. Alternative lenders include non-bank lenders such as invoice factors and merchant cash advances. These lenders stepped up during the 2008 recession to fill the void left when traditional lenders stopped lending to ventures deemed suddenly too risky. For some businesses, the only way to stay open during the recession was with alternative funding. The smartest option for your company is the one with the most benefits and fewest disadvantages. This can mean some research on your part, but it can make a huge difference in the long-run.
What Are the Benefits?
Alternative business funding can offer you some incredible benefits such as access, speed and ease. If you go with factoring as a funding option, then you can even have the factor take over the invoice collection for your company on a permanent basis to free up more of your time for building the company up. With many alternative funding options, you will be better able to access the cash because it is easier to get approved for the financing. For instance, many bank loans can take weeks or months for approval, but some alternative options can take as little as a day. It can also be easier to apply for this kind of funding because you will need much less paperwork than for a traditional bank loan. For instance, some banks require three years of bookkeeping records as well as a credit check while some alternative lenders will just need a credit check and main account statements.
What Are the Disadvantages?
Some of the disadvantages of funding your company through alternative means include higher interest rates, shorter terms and higher fees. Because this type of funding puts more of a risk on the underwriters than a traditional bank loan, those underwriters will want a higher reward in the form of interest rates and fees as well as a shorter time to wait on a return. This can be a hardship on some companies, so it is a good idea to research all of your options before deciding on which to sign.
Alternative business funding is that which does not come from a traditional source, such as a bank. This means that you will have different advantages and disadvantages as well as a whole new way of applying and repaying. Some of these funding options are not even loans, they are advances, which can make it easier on your bottom-line.