10. Merchant cash advances
A merchant cash advance is the opposite of a small business loan in terms of affordability and structure. While this is a quick way to obtain capital, cash advances should be a last resort because of their high expense. Many of the top merchant services offer this option, so check with your provider to see if this could be a form of capital to explore
“A merchant cash advance is where a financial provider extends a lump-sum amount of financing and then buys the rights to a portion of your credit and debit card sales,” said Priyanka Prakash, lending and credit expert at Fundera. “Every time the merchant processes a credit or debit card sale, the provider takes a small cut of the sale until the advance is paid back.”
Prakash says that while this appears to be convenient, cash advances can be very expensive and troublesome to your company’s cash flow. If you can’t qualify for a small business loan or any of the options above, only then should you consider this option.
11. Microloans
Microloans (or microfinancing) are small loans given to entrepreneurs who have little to no collateral. Microloans sometimes have restrictions on how you can spend the money, but they typically cover operational costs and working capital for equipment, furniture and supplies. One example of a small business microlender is Kabbage, which offers microloans of $2,000 to $250,000; you can learn more about it in payday loan New York Warwick our Kabbage review. Another example are SBA microloans administered by nonprofit organizations.
The benefits of alternative lending
Startups can enjoy a few key benefits in securing funding from a nontraditional source, according to Serkes. She believes that with alternative loans, a business owner gets a strong, invested partner who can introduce them to new clients, analysts, media and other contacts.
- Market credibility: The startup gets to “borrow” some of the goodwill that the strategic partner has built up, and working with an established investor lends weight to the brand.
- Infrastructure help: The larger partner likely has teams for marketing, IT, finance and HR – all of which are things a startup could “borrow” or utilize at a favorable rate.
- Overall business guidance: It’s likely the strategic partner will join your board as part of the investment. Remember that they have a wealth of experience in business, so their advice and viewpoint will be invaluable.
- Relatively hands-off partnership: A strategic partner still has their own business to run, so they are unlikely to be very involved in the day-to-day operations of the startup. Occasional updates on your business, such as monthly or quarterly, are usually sufficient check-ins for them.
All businesses need working capital to thrive. Without the appropriate business financing options, startup companies are likely to fail. Avoiding the traditional bank loan route might seem like an impossible feat, but there are a plethora of small business financing options readily available for entrepreneurs. Gathering the right market data research and implementing the best financing option for your company increases the chances of your business surviving for the long haul.
Applying for financing entails much more than just filling out an application. To increase your chances of getting financing, small business owners should do their homework and have a strategy.
Know how much you need to borrow upfront. When you apply for business loan alternatives, you’ll likely find that many different loan amounts are available. Don’t commit to borrowing more than you need; there may be penalties for early repayment or for not using your whole loan.