There are many alternative financing methods that are available to small business owners who do not want to rely on the traditional sources, such as banks, for funds. Factoring, peer to peer borrowing, and advance day programs are three ways that any small business can raise money and strengthen its cash flow.
Peer-to-peer borrowing is a system that involves approaching private lenders for loans. In this system, small business owner requests a loan, and the details of that loan are posted publicly. The loan details include the term, maximum preferred rate of interest and the amount the business owner is asking for.
In peer-to-peer borrowing, private lenders bid on small business loans and the offer that is the best is usually the one that will be accepted. The repayment habits of the borrower are made public information for their peers to see, putting pressure on the business owner to honor the obligation.
Due to the social aspect of peer to peer borrowing, the rate of default with this type of financing is extremely low.
Advance Pay Programs
If you are a small business owner with credit card sales, then you should know that there is a system available for obtaining a small business loan up front before you even make a sale. Even though a high price tag will be attached with this program, the upside is that you can quickly get cash for your business. This can prove to be very helpful in boosting weak cash flow when you know that you have the potential for strong credit card sales in the future. This small business loan is secured with the help of your future credit card sales.
Here’s how it works: a fixed amount of your future credit card receivables will be purchased by a lender at a discount. The lender will then give you the complete loan amount at the discounted rate. When a customer of yours makes a purchase for products via credit card, the money from this transaction will be collected by the lender. These payments will continue until the entire loan has been repaid.
This is not a collateral loan, but lenders have stringent requirements for these types of loans. If you are using an advance pay program for obtaining a business loan, then it can give you access to much-needed money to continue your business operations.
If you want quick financing for the credit needs of your business, then factoring is yet another option available to you. Factoring uses your business’ account receivables as collateral for a small business loan. As your receivables are paid off, you will also be paying off your business loan. In certain cases, the outstanding account receivables you have are basically an exchange for the amount of business credit that the lender extends to you.
In factoring, the collection of the loan is the lender’s responsibility. Factoring to obtain finance for your small business is also a strategy that you can use to build a strong business credit score. You can also use factoring instead of approaching individual investors, where you may have to give up a part of your ownership of the business.
Obtaining financing is something that every small business owner will have to do sooner or later. No matter what type of financing you decide to use, you should borrow only what you really need and pay off the loan as soon as possible.