Micro-businesses are still facing a hard time acquiring funds despite the new-fangled federal programs meant to better the flow of small loans. It’s no wonder a good number of entrepreneurs are still counting on non-bank lenders.
But what other options do you have?
Asset-based Lenders – They offer loans & business lines of credit which they secure using your inventory, account revenues and any other balance-sheet asset, i.e., machinery. Asset-based funding can be used to help handle cash-flow matters like payroll or inventory.
Peer-To-Peer Lenders – These are individuals or groups of investors willing to offer entrepreneurs loans through matchmaking websites. Sometimes they come in auction-like systems where lenders will provide you with the lowest interest rate offer if you win.
Factoring companies – They have been assisting retailers for quite some time. Such lenders buy your company’s business account receivables (which they collect themselves) at a discount. In essence, it isn’t a loan, but more or less like buying a financial asset and lending a business the instant cash it needs.
So do you love the idea of borrowing from an alternative lender? And if you do, how do you get the right firm to borrow from? Here are the factors to consider.
- The size of your business
Some Asset-based financial providers have a revenue cap which you have to meet to obtain their funding. Look for one that covers all your businesses needs and ensures their financing package matches you.
Sometimes a lender will refer you to colleagues who offer smaller deals if you fail to reach their cap, so it pays to ask for a referral. And if you need a tiny amount of cash, then peer-to-peer is a more straightforward option.
- How big a player you are in the game
Alternative lenders expect you (the firm owner) to hold a 50 percent stake in your ventures, up from 33 to 35 percent during tough times. No one is willing to lend a client 100 percent of the financing if they have nothing to secure it. So if you only own a small piece of your business then consider other merchant funding options.
- How qualified you are
With alternative lenders, sometimes you must be ready to present more paperwork than you would in a bank situation. In fact, don’t be shocked if they ask to examine your personal tax returns. Such lenders have a strict policy because they deal with borrowers who are otherwise considered not creditworthy.
- The cost of the funding
To calculate the total costs of borrowing money from a factor, you should ask yourself some detailed questions. Is there a minimum monthly cap you can borrow? Does the factor charge a wire-transfer fee? Do you pay a termination fee if you end the contract?
Author Bio: As an account executive, Michael Hollis has funded millions by using alternative funding solutions. His experience and extensive knowledge of the industry has become a true asset for First American Merchant, the No.1 Merchant funding company.