Since banks may seem like the only trustworthy source, unfortunately, many have lending policies and anyone who wants to grow financially, whether you are a striving businessman or already own a small business, this can be hard to get. This is why we wanted to talk about alternative yet equally available ways of loans and financing types.
Financing types
LOC Lines of Credit can be helpful with cash flow management. Line of credit represents a set amount of money that you can use if you need cash. You can choose between secured and unsecured LOC. A credit line that is secure needs to have collateral, where unsecured doesn’t, which is the main difference between the two. Once you pay off the amount that you borrowed from the LOC, you can use the same amount again. When the business decides to use all the cash, it must be paid back within a certain timeframe back to LOC.
Merchant Cash Advances
Merchant cash advance (MCA), means a business owner will receive lump-sum financing, but for a percentage of any of their future credit card sales. This can be a beneficial purpose if you have a steady stream of credit card payments.
When you receive a cash advance, the provider will take a percentage of your credit card sales until your balance is evened out. If the sales go higher, you will pay more. The same way goes if a period is slower, then you pay less. This won’t put you under more pressure, and it helps your business a lot.
Working Capital Loan belongs to a category of loans rather than a type. This type of loan also helps a business when they need to meet short-term operational obligations. The working capital loan includes lines of credit, invoice financing, term loans, and everything in this category of loans. WCL can be secured or unsecured, but they are mostly the latter, and those require you to have excellent credit if you want to get approval for one.
Equipment loans may be the best for small businesses since they can help them get funding when anything regarding equipment breaks down. This class of loans uses the equipment as the collateral and owners can get financing in exchange for a big percentage of their equipment’s cost, since this is a secured loan. Is there a type that qualifies for equipment loan? Yes, and it’s most often high-end vehicles or machinery in generals. It’s usually something your business couldn’t be able to operate with. Whether it’s an oven for your restaurant or a coffee machine, it’s equally essential for the owner. It’s great that alternative lenders provide equipment loans because they will usually focus on a specific business making it more adequate depending on what your business is.
Professional practice loans are created specifically for medical professionals, including legal and accounting ones. This type of loan is widespread because medical equipment is very costly, and doctors, dentists and veterinarians can use them for their business.
Invoice Factoring is probably among the oldest ways of business financing that dates back to the Roman empire (some claim even before). It’s a shame that many don’t know about it since it differs from asset-based lending (meaning a loan has to be generated). In this case, collateral is receivable. With factoring, there is no generated loan, so it doesn’t affect the company’s credit.
Peer-to-Peer, or only P2P loans, is a system of loans becoming more popular thanks to the internet and its accessibility. P2P loans are another great alternative to conventional bank loans. If you want to get one if you are really in a rush, you need a stable internet connection, and what’s excellent it happens directly between people, on a particular website or app for money transfer. The online format made this process far easier without including banks and strict rules or perfect scores. The best thing is, you can find a loan whenever you need it.
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