Can’t Get a Business Loan?

It time again to revisit alternative financing strategies for business owners needing money.  Whether your business needs capital to grow, meet payroll, or to just simply survive, there are numerous alternatives for your company when banks so ‘NO’.

Personal loans are no longer viable options for business owners.  Banks have tightened their purse strings on personal credit just as they have with business credit.  This tightening typically does not have anything to do with the state of your credit or the value of your collateral.  But more reflects their past indiscretions with their depositors’ money.  Further, most business owners, over the last two or three years, have already encumbered all of their personal assets, leaving nothing of value to collateralize.

The following lists many alternatives that may still be available to your business.  These alternatives allow business owners to capitalize on their previous hard work; be it from building relationships with suppliers and other business partners to closing sales and building a strong customer base:

Using Your Business Relationships!

Trade Credit:  It never hurts to work with your suppliers.  Ask for better terms; either more discounts or longer time for payment.  Here you can reduce your overall costs or allow more time to collect money from your customer before payment is due to these suppliers.  Now, your suppliers may baulk at this discussion as they are probably feeling the same pinch as you are.  However, impress upon them that it does their business no good (short term or long-term) if you go out of business, have to cut back your standard orders, or are forced to find other suppliers who offer better terms.

In conjunction with trade credit, do all that you can to collect your receivables from your customers, as soon as possible.  If your suppliers offer you discounts for early payment, offer the same to your customers (just maybe not at the same magnitude) or offer discounts for cash.  This allows you to collect payments faster as well as reduce you costs by paying less for the goods you need to run your business.  Just remember, in this type of economy, cash is king.

Using The Strength of Your Customers!

Receivables and/or Purchase Orders:  If your business has accounts receivables sitting on its book just waiting to be collected, you maybe able to get cash for those assets NOW.  There are cash advance companies (not banks) that specialize in purchasing your receivables.  Companies like Bridgeport Capital Service, RTS Financial Services, or Paragon Financial Group.  These companies will purchase your invoices for up to 90% of their amount.  They will then work with your customers to collect these receivables (saving you both time and money on collection).  When the invoices are paid, these companies will refund to you the remaining 10% of the invoice amount.  This type of funding is great for struggling companies as these cash advance businesses will focus more on your customers’ credit and business strengths than your.

Many of these same companies will also finance your purchase orders.  If you place an order with your suppliers and agree to pay for their goods over time, these cash advance companies will finance these agreements.  This could allow your business the opportunity to take advantage of trade discounts (percentages off the purchase amount) as your company will have immediate cash to satisfy your supplier.  This is very similar to having a line of credit with your bank but as an individual credit facility for each purchase.

Credit Cards:  I not saying go out and get more credit cards.  If your business accepts credit cards, there are companies (again, not banks) that may advance cash to your company based on your FUTURE credit card receipts.  These facilities are only paid back when your business generates credit card sales.  Thus, if you have a slow month, you are not stuck with a huge monthly loan payment.  As your credit card sales ebb and flow, your repayment of these advances will ebb and flow in tandem.

Using Your Character!

Need just a small amount of cash to get you by?  Try social lending sites like All World Private Funding!, Zopa, Prosper, or Lending Club.  These sites create peer-to-peer lending in which ordinary people, who have additional cash, can review your request and contribute to the funding of your loan.  The benefits of these programs include getting the money you need, possible lower rates and better terms than most banks offer, and you get to tell your story directly to the lenders.

Similarly, there is Micro-Credit companies.  The largest in the US and around the world is ACCION USA.  Micro-finance companies limit their total out lay to a maximum of $25,000 per loan.  However, most micro-credit funders like to build relationships first with their borrowers.  Thus, they may only approve smaller amounts in the beginning and increase your loan amount as you pay back each facility.  These companies will also work with startup firms or those that have been turned down by traditional banks and other financial institutions.

Never forget your friends and family.  These are the people who know you best and may better understand what you are trying to do with your business.  There are many cons with borrowing money from those closest to you but new companies like Virgin Money will help you manage this new relationship.  Companies like Virgin will help you keep everything in a business like manner. 

Now, while there is a lot of focus these days on traditional banks, most communities also have Credit Unions.  Credit Unions are not-for-profit organizations.  Thus, they do not have to worry about Wall Street or shareholders.  While the majority of Credit Unions have yet to fully adopt commercial lending departments, they should have lending programs in place that will meet your business needs.

Some of these alternative options maybe a little more expensive, overall, then having a single credit facility with a bank.  But, they are a sure fire way of leading your company through our current credit drought.  The key to success is to do your homework.  Find the program that best fits your needs and that will provide the greatest benefit at the lowest cost to your business.  Some business owners tend to panic a bit when they begin to feel the credit pinch.  It is only natural as raising money for your business is time consuming, time that can hardly be spared in these trying times.  But, remember to think about the long term.  Don’t just settle on the first source that gets approved, find the best fore you.  Be diligent!