When you find yourself in need of working capital for your business, what options are available? Today, small business owners have no shortage of options and it can be overwhelming to decide which one is best.
Before you decide to borrow, it’s important that you know what your needs are and to make sure the numbers make sense for you and your business. How will you use funds? Do you expect to pay it back in a short period of time?
If you don’t have the cash flow to service the debt, it may not be the best option for your business at this time. Remember, the ability to service debt is a key factor when a business needs to raise additional working capital.
The good news is there are business funding options offering a much easier debt to service compared to a loan. To give yourself extra padding to meet your company’s financial obligations, here are three options to consider.
Alternative Lending – Traditionally, small business owners have turned to banks or credit unions for loans, lines of credit, etc. While working with a bank is still a preferred option, what happens if you don’t meet their strict requirements or timing is an issue?
The good news is alternative lending offers a quicker and easier process when it comes to borrowing money. Some of the major differences between banks and alternative lenders can be broken down into three main areas; application process, qualification requirements and the time it takes to fund.
Many alternative lenders have streamlined the application and approval process so the turnaround time to secure funding is a major plus. However, an alternative lender is typically going to charge a higher interest rate compared to a bank or credit union.
Invoice Financing – Do you have unpaid invoices? The fact is late payments and overdue invoices can cause a serious cash flow problem for a business. A financing solution known as invoice financing or accounts receivable financing, allows small business owners to free up unpaid invoices.
Invoice financing is also a viable solution for fixing cash flow issues that allows small business owners to get advances on unpaid invoices. This is different from invoice factoring because instead of having clients direct their invoice payments to a factor, your clients will continue to direct their payments to your business.
This is an important point because with invoice financing, you remain in control of the sales ledger, collections, and invoice processing.
Revolving Line of Credit – Unlike traditional business loans, which have a fixed monthly payment and repayment term, a revolving line of credit is open indefinitely. It provides a business the flexibility to access funding up to a set credit limit at any given time.
There are many types of revolving line of credit products available from banks, credit unions and alternative lenders. To apply, banks typically require personal and business tax returns, bank account information and business financial statements.
Lender Match is a free online referral tool that connects small businesses with participating SBA-approved lenders. If you’re seeking a line of credit, use it to get matched with an SBA-approved lender.
Alternative lenders use various types of data during a review such as revenue data from business checking and other popular services.
Business credit cards are a perfect example of a revolving line of credit. With a business credit card, you can decide to either pay off your balance in full each month or make the minimum monthly payment. Before you apply for a business credit card be sure to review our guidelines for success.
There’s no single best funding option for working capital. However, let these options listed here provide you insight and guidance as to what is available. If you need access to working capital fast and you don’t meet bank qualifications, consider one of these options as a possible solution.