Alternative Business Funding When Banks Reject Loan Applications
Here’s a common scenario. You’re submitted all the forms and documents your bank requested. You’ve done all your homework. You wait for their decision. You’ve been rejected. Your vision of being your own boss or expanding your existing business has been squashed. Or has it? In today’s tumultuous economy, many others have been in your situation. Now, it’s time to get creative. Luckily, there are many other ways to get business funding that doesn’t involve the banks. Your business can utilize tools such as commercial real estate financing, equipment leasing, revenue based loans, unsecured business lines of credit, and accounts receivables financing so that your dream of owning your own business or expanding your existing business can become a reality.
Many businesses are now turning to alternative financing options available for businesses looking to circumvent banks, and there is generally more freedom in these options, too. How you use the funds is generally at your discretion, and this flexibility can certainly help you achieve your goals. Please don’t hesitate to contact us to discuss which of the options below best fits your current financing needs.
Commercial Real Estate Financing
One of the biggest parts of a business’ expenses is retail rent. Without upfront business funding, signing a commercial lease for your future location is next to impossible. The good news is that there are alternatives to a lease for you. Consider financing your commercial real estate property directly with a lender. Like a mortgage on a residence, a commercial real estate loan allows an entrepreneur to finance the location of his or her company. Making payments on the property is like a home mortgage. Your business won’t have to worry about a landlord raising the rent or issues that pop up as a renter. If your organization needs to relocate, you can work with a commercial property realtor to get the best price for your location or lease the property out to another venture, all while making a profit from the proceeds.
Equipment Leasing
The next big part of the business funding is buying any specialized equipment. Many organizations try to save money by buying used machines, but that can lead to even higher repair costs. An alternative to purchasing new equipment is to try equipment leasing. Leasing equipment allows your organization to outfit your location with all needed devices, without fronting all the cost for them. This gives your company access to new gear, and when your lease ends, your company can either purchase the equipment or select newer, more up-to-date items as your business grows.
Revenue Based Loans
Running a business has its ups and downs, and you may also find yourself in sudden need of cash from an unexpected expense or a seasonal increase in sales that necessitates a quick buildup of inventory. A revenue-based loan can be offered to you based on sales volume. A more mature business can get better options, such as extended repayment and preferred pricing, but any business with at least fair credit can find flexible repayment options. Your approved revenue based loan amount will be based on the last few months of bank statements and/or credit card statements. You pay it back in increments, either as a percentage of your future payment card sales or fixed daily payment.
A revenue-based loan could be a good idea for your business if you are having trouble obtaining credit, but have healthy monthly revenue with 10 or greater deposits per month. You need to keep in mind that a revenue-based loan is not a traditional loan; you are not being charged interest. Rather, you are receiving cash up front in return for a percentage of your future sales. However, often it is the case that cash up front makes the difference on whether your business can recover from an unexpected event or meet increased demand and not lose market share. This can also be your best option if you do not have enough credit to get a loan that meets your cash needs.
Unsecured Business Line of Credit
Many times, bank loans are declined due to lack of collateral. Owners who are in this situation may consider an unsecured business line of credit. This capital option doesn’t require collateral, so processing time is not only easy, but also fast. For financiers who need some working cash upon opening, this is a viable alternative. Although the length of ownership or perfect reported financials are not required, this option does require your credit to be at the minimum in the high 600’s.
Accounts Receivable Financing
Owning a small business can often be a headache. When you provide services for customers, but they are slow in getting payment to you, it could put all your operations at a standstill. The only way for a business to grow successfully is by having ample cash available to benefit the business. The problem, however, is finding that cash without having to take out loan after loan. When your business needs money and you want a solution that will not put you in debt, it can be a good idea to explore your options with accounts receivable/invoice factoring. The idea is very simple. Essentially, you sell your invoices to a company that gives you a certain amount of cash right off the bat. The company then is responsible for collecting the debt that is owed to you from a customer. Once the debt has been completely collected, you will receive the difference, less a fee to the company for the services provided. The fees on this option can range from 1.5% up to 5% per month.
The biggest benefit to utilizing invoice factoring is that it can improve the cash flow of your business. If you do not have the cash required to cover the overhead costs of your business, you could be putting your establishment in jeopardy. Factoring can allow you to cover essential costs like having funds for necessary materials, paying employees and purchasing equipment that your business requires to thrive.
One thing to keep in mind about invoice factoring is that it is not a loan. You will not be going into any sort of debt when you opt for factoring. The cash that you are receiving from your factoring company is money that you are already owed. Instead of waiting for the money to arrive from a customer, you are helping to expedite the process by getting some of the money right away. On top of that, you do not have to deal with the headaches that can come along with collecting a debt. Your factoring company will take care of all the difficult stuff, and all you must do is sell your invoices to the company. When your business needs a boost, you can’t do better for immediate cash flow than invoice factoring.
The bottom line is don’t give up if your business financing plans don’t include conventional banks. Commercial real estate financing, equipment leasing, revenue based loans, unsecured business lines of credit, and accounts receivables financing can help your business obtain the funding it needs.