Alternative business funding includes non-traditional methods of generating working and investment capital for your business.
If you’ve been rejected by the big banks, you’re not alone. It’s critical that you soldier on to raise operating capital, though; a U.S. Bank study found that 82% of business failures are due to issues with cash flow. Where can you turn for help?
Some of the alternatives to bank loans for small businesses include higher interest private lenders, angel investors and venture capitalists, SBA loans (longer term loans guaranteed by the U.S. government), grants, lines of credit, merchant cash advances, and invoice funding.
When it comes to funding your small business, there are a few important considerations to keep in mind:
Consider the potential impact of creating new debt or giving up some ownership or control of your business. There’s even greater risk in putting your personal assets up as collateral. Alternative finance companies are giving small businesses more and better funding options by using technology to find efficiencies. With FundThrough’s invoice funding app, for example, you can raise capital using revenue you’ve already earned.
There are a few key differences between traditional and alternative business funding:
If you’re operating an established business with stable, steady cash flow and have great credit, you might consider a bank loan. The odds aren’t in your favour, considering that over 80% of small business loan requests are turned down by banks. Only half of applicants will receive anything at all, according to the Federal Reserve Bank of Cleveland, and it may not be near what you need to keep your business afloat.
For short term funding, invoice factoring can’t be beat. It enables you to put cash you’ve already earned to work for your business right away, rather than waiting weeks or months to get paid. Invoice factoring also negates the need for taking on new debt, paying high interest or finance fees, or giving up an ownership stake in your business.
Absolutely, but make sure you understand all associated fees, terms and conditions, and interest. Traditionally, companies that offered invoice factoring would purchase your invoice, advance you about 80%, and go collect from your clients. There are a lot of companies out there today that operate more like payday lenders, advancing your funds but charging extremely high interest rates.
Use a reputable invoice factor like FundThrough to have invoiced funds advanced to you. You pay one simple fee: 0.5% on the amount funded, with no additional service fees or interest charges. Repayment takes place over 12 weeks, and you can reduce the fee with early repayment. Calculate the total cost of invoice funding here for free.
To calculate the cost of a bank loan, you’ll need to know the amount being borrowed, the length (term) of the loan, and the interest rate. A simple online calculator like this one offered by Bankrate.com allows you to plug in your figures and see how much a bank loan will cost.
For more complex business loans, try this online calculator that allows you to choose different interest types, additional fees, repayment schedules, etc. As you can see, business loans can get complicated – if you qualify.
Yes! Invoice funding is a smart, proactive alternative to bank loans that can help improve your cash flow and prevent cash flow gaps, finance new equipment or inventory, hire new talent and more. You don’t need to jump through the hoops of traditional lenders or worry about high interest charges and hidden fees, either. Learn more about how invoice factoring works here.
Use the calculators listed above to compare your financing options. You should also factor the following into your funding decision:
Learn more about how FundThrough works and why business owners chose invoice factoring to finance their businesses here.