Some businesses, especially small and midsized companies, still have a hard time getting a loan from a traditional bank. This has forced those companies to look into alternative lending to help grow their businesses. Discussed below are some common sources of alternative funding and how they work.

Factoring

This is a transaction where a company sells its account receivables in return for cash to finance its growth or solve issues with cash flow. Factoring helps a company access immediate cash rather than waiting for almost two months for clients to pay.

Pro

If a customer defaults, the factor or lender assumes the credit risk.

Con

For this service, the lender will charge a certain fee.

Equipment Sale-Leaseback

This is a type of alternative lending where a company sells its equipment to a lender in return for a significant amount of cash, and then the lender leases the equipment back to the company.

Pro

The business gets a cash infusion and still gets to continue using the equipment.

Con

The company no longer owns the equipment, and they have to pay a certain fee for the continued use.

Merchant Cash Advance (MCA)

It is when a lender offers a business a lump sum in exchange for a share of the company’s future sales. So, for every future transaction you do, part of that money is used to pay back the loan.

Pro

You have no due dates or fixed payments to meet.

Con

A lender can take a significant percent of your credit card receivables.

Purchase Order Financing

This type of alternative lending provides a business with working capital to deliver on a customer’s purchase order and avoid risking a sale.

Pro

Funding is based on customer credit and not on business.

Con

The lender takes a significant part of the gross profit margin of a purchase order

Microloans

Microloans offer a small amount of cash, ranging from $100,000 to 150,000.

Pro

A business with a low credit score can qualify for this loan, and they also require little documentation.

Con

They have higher interest rates than banks (between 12- 18%) depending on the credit score of the borrower.

Auctioning Receivables

Here, businesses auction their receivables to various investors through a network such as The Receivables Exchange (TRE).

Pro

A business might be able to generate more cash than traditional funding as the process is competitive.

Con

There are no additional services like bookkeeping which you may get from traditional factors.

Business owners need to do in-depth research on alternative lending to make an informed decision. And if your business is looking for an influx of cash to grow? Then, reach out to Rushview Commercial Funding and get the financial assistance you need to boost your business.