11 Alternative Approaches To Funding Your Business

Running your own business often involves a lot of risks and decisions to make. Sooner or later, you may need some financing help to keep your business running. Whether it’s for new equipment, renovation, or a new employee, there are many funding alternatives to explore. Though this article focuses on alternatives available in the US, there may be similar alternatives in your country.

Financing options for your business will vary by lender in accordance with your needs and financial capacity. Here are some of the alternatives you should know about, including their pros and cons:

1. Small Business Administration (SBA) Loans

The Small Business Administration is a government-owned agency designed to help small business owners in financing their businesses. They do this by partnering with banks and other financial institutions. Since the Small Business Administration guarantees its loans, lenders see it as less risky.

SBA loan’s repayment term usually depends on how you plan to use the funds. It ranges from 7 to 25 years. Furthermore, you may get any amount from $500 to $5.5 million from this type of loan.

Pros:

●           Offers the lowest rates there is in the market

●           It can grant you a significant amount of money (up to $5.5M);

●           Has long repayment terms

Cons:

●           May be challenging to qualify for

●           Has a long and strict application process. 

2. Term Loans

Term loans are common types of business funding. You will receive a lump sum of money upfront and then repay it with interest over a set period. Borrowers tend to receive up to a million with this type of loan.

Pros: 

●           It offers high borrowing amounts

●           It can help deliver cash upfront

●           It offers fast funding processes

Cons:

●           May require you to put up some collateral

●           Costs may vary from one lender to another.

3. Equipment Loans

Equipment loans are funding options designed to help you out when buying equipment for your business’ growth. The loan term is usually matched with the expected lifespan of your chosen equipment. Furthermore, rates will vary depending on the value of the equipment and the financial status of your business.

Pros:

●           You will own the equipment and build some equity in it

●           You can get favorable rates if you have good credit.

Cons:

●           May require you to put up a down payment

●           There is a possibility that your equipment will become outdated before you are able to fully repay your loan. 

4. Vehicle Loans

This type of loan can help you get the vehicle your business needs. Suppose you are running an RV rental business, you may be eligible to apply for a loan to purchase an additional RV. There are various lenders to choose from. As a starting point, you may contact My Financing USA to explore available loan deals.

Pros:

●           You can buy now and pay later

●           It can be used to build or rebuild credit.

Cons:

●           May have high-interest rates and fees

●           Comes with the risk of default.

5. Personal Loans

You can use a personal loan with almost anything you want, including business purposes. If you are still on the verge of starting a business, you may want to consider this option. This is because banks usually don’t lend funds to businesses with no operating history.

This type of loan is also good for existing businesses. It would, however, be best to remember that personal loan eligibility significantly depends on your credit score. This means that if you have an excellent credit score, you are more likely to get approved. You can check your credit score for free with ClearScore, an example of a site that offers this.

Pros: 

●           New businesses can qualify

●           It offers a quick funding alternative.

Cons:

●           May have high borrowing costs (especially if you have a bad credit score)

●           Small borrowing amounts are only up to $50,000

●           Failure to repay may hurt your credit score.

6. Microloans

Microloans are regarded as small loans. Borrowing amounts tend to start from $50,000 or less. Moreover, they are typically offered by mission-based lenders and non-profit organizations. This type of loan is usually available to new businesses, start-ups, and businesses located in poor communities.

Pros:

●           It can be low-cost

●           May offer training and consulting services.

Cons:

●           Only offers small loan amounts

●           Might have stringent qualifications.

7. Business Lines of Credit

This type of funding option will grant you access to funds, but it is essential to know that there is a credit limit. Furthermore, you will only pay interest on the cash you have withdrawn.

Pros:

●           It is a flexible way to borrow funds

●           It is unsecured (requires no collateral).

 Cons:

●           May involve additional costs (for example, draw fees)

●           May require good revenue and credit.

8. Invoice Factoring

You can get cash from the unpaid invoices you have by selling the invoices to a factoring company. The company will then be the one to collect from customers when the invoices are due.

Pros:

●           It offers fast funding

●           Has an easier approval process than traditional bank loans.

Cons:

●           It can be costly

●           You may lose control of your invoices.

9. Invoice Financing

Invoice financing is similar to invoice factoring, however, instead of selling to a factoring company, invoice financing uses invoices as collateral for a cash advance. 

Pros:

●           It offers fast funding

●           Your customers will not know their invoices have been used as collateral.

Cons:

●           It can be costly

●           You will still be responsible for collecting your customer’s invoices. 

10. Merchant Cash Advance

This option can help you receive a lump sum of funds upfront. Furthermore, you will have to make repayments through a merchant cash advance.

Pros:

●           It can provide cash quickly

●           It is unsecured (no collateral needed)

Cons:

●           May come with high borrowing costs

●           May create cash flow problems

11. Business Credit Cards

This type of alternative is a revolving line of credit. You can withdraw money as long as you don’t exceed the credit limit. Moreover, they are usually best for ongoing expenses such as office supplies.

Pros:

●           You can earn rewards

●           It is unsecured (no collateral is needed)

Cons:

●           May come with high borrowing costs

●           May involve extra fees and charges

Takeaway

There are several options you may choose from to fund your business. The best way to know which alternative suits you is by doing the research or contacting a loan advisor if you’re unsure. Always remember to choose the one that best fits your current situation.

Author Bio

Lauren Cordell is a financial advisor. She writes about the financing options every business owner should consider. In her free time, Lauren loves to travel to beautiful tourism destinations.