Most business-owners take a considerable risk when they hang their physical or metaphorical shingles. Typically, these owners leave the security of full-time jobs and regular paychecks for a world of uncertainty. The investment of time and money does not always pay off right away. Online retail giant Amazon, which was founded in 1994, operated at a loss until 2001 and did not fully retire this debt until 2009 (fifteen years later).
Alas, most banks do not share this appetite for risk. They prefer sure things. When new businesses need cash for expansion or for other purposes, their borrowing options may therefore be limited. Here are some places where your business can obtain the cash it needs to keep moving forward.
Invoice Financing
Even businesses that have been around for less than a month, have no credit history, and no revenue may be eligible for invoice financing loans. Essentially, the business gives the lender its unpaid invoices as collateral for the loan. These types of loans are best for businesses that either have very large accounts receivable balances or recently landed the proverbial “big fish.”
Short Term Loans
If your business needs money quickly, has been operating for at least a year, and has a minimum credit score of around 500, it may qualify for a large short-term loan. The lender typically requires repayment within three to thirty-six months. Depending on your perspective, that could be a good thing or a bad thing. Short-term loans cost less than long-term loans because there is less interest. But if things do not pan out quickly, your business could be in real trouble.
Asset-Based Loans
Sometimes, the answer to a short-term cash need is almost literally in your parking lot. Many construction companies and other such firms paid significant amounts of money for their equipment. When these businesses need cash, they can tap into that equity just like a homeowner with a home equity loan. Length of operation is usually not an issue. Some asset based-lenders even loan money to startups. Monthly income is not much of a factor either. The loan amount is based on the equipment equity, and if the business fails to make the payments, the lender simply repossess the collateral. These loans are also good choices for companies that already have some debt and need a fresh source of investment capital.
Medium-Term Loans
These loans have a lot in common with short-term loans. But there are some significant differences. As the name implies, borrowers usually have longer repayment terms. The slightly-extended term still keeps the interest expense rather low, and offers more payment flexibility. Lenders usually have higher standards for these loans in terms of credit score and length of operation.
Merchant Cash Advance
These high-cost loans are the last resort for many businesses. But if you have poor credit, they might be a first (and perhaps only) choice. These loans are something like payday advances for businesses. Qualifications are usually low. Most businesses need a credit score of at least 500, $2,500 a month income, and three months in operation.
Online Inventory Financing
If your business needs a line of credit to purchase additional inventory and meet a short-term need, online inventory financing may be the right choice. Perhaps you are a seasonal business and you are coming off a particularly bad slow period. Or your business may have a sudden large order that must be filled straightaway. These loans are usually inventory-secured, so they are generally less expensive than other short-term cash alternatives. Approval usually comes in a matter of a few days, so the items to sell quickly appear on your shelves.
Revenue-Based Financing
RBF (Royalty Based Financing) loans have even more flexible repayment terms. The lender calculates repayment based on your business’ revenue as opposed to a predetermined amount. Essentially, owners trade future earning equity for immediate cash. SaaS companies and others with very high margins are good candidates for these loans, as are firms with subscription-based or other predicable income streams.
If you do not feel that your business will qualify for a bank loan, do not fret. There are a number of options available. The interest rate will be higher, but the money will be in your account when you need it.
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