Securing funding is an important step for your business venture. However, traditional business loans aren’t always easy to qualify for. Here are six other options to explore when you can’t secure a traditional business loan.
Why Are Business Loans Difficult to Obtain?
The truth is that financial institutions consider small businesses as too risky. A study found that banks deny 82% of loan applications for small businesses.
Small businesses often have a limited credit history or a low credit score. Startup and small business owners usually don’t have an extensive personal credit history, and few assets they can use as collaterals.
SBA Loans
If you have an existing business with a proven track record, you can look into the different SBA loan programs. Business owners don’t borrow directly from the SBA. Instead, getting approved for one of these programs means that the government will back your loan.
You can then obtain a loan through a lender, and you will benefit from lower fees since you won’t be considered as a high-risk customer thanks to the federal backing you get through the SBA.
Business Credit Cards
Business credit cards are a popular financing option because they’re easy to qualify for. It’s a flexible financing option that you can use to get cash advances and use them toward your working capital. You can also use your business credit card to purchase supplies or equipment.
Using a business credit card allows you to build your business credit score, and you can find some cards with interesting rewards.
The downside is that fees and interests tend to be higher than other financing options.
Short-Term Loans
A short-term loan is a type of business loan that is easier to obtain than a traditional business loan. Business owners typically borrow small amounts and pay off their balance within a year or less.
The fees are higher when compared to traditional business loans, but the small average balance of these loans makes them an affordable option.
Equipment Financing
If you need capital to purchase machines or other types of equipment, you should consider an equipment loan.
Business owners typically borrow enough to finance the purchase of an important piece of equipment and make monthly payments on that balance. The amount borrowed is smaller than the average balance for a traditional business loan, and you can keep fees and interests down by using the equipment as collateral.
Crowdfunding
Using crowdfunding platforms and social media allows you to connect with your audience early on in your business venture. A lot of startups have launched successful products through crowdfunding platforms.
Customers can pay for a product in advance to help finance the initial run. You can offer additional rewards to encourage people to contribute more to your campaign.
The downside of crowdfunding is that you need to invest time and resources to promote your campaign, and your campaign has to reach a financial goal for you to have the funds necessary to launch your project.
Invoice Financing
If you bill your customers with invoices, you can apply for invoice financing and borrow money from future invoices. You can get lower fees with this type of loan because lenders won’t consider you as a high-risk customer since the invoices are proof that you will get enough revenues to cover loan payments.
You can also use invoice factoring to boost your cash flow. With invoice factoring, a service provider purchases your invoices and gives you an advance. It’s an easy way of accessing your money, and you won’t have any future payments to make.
There are plenty of funding options available if you can’t qualify for a traditional business loan. Compare your different options and establish a strategy that makes sense for your business goals.
Author Bio:
Grey Idol
Grey manages content and digital marketing initiatives for altLINE, a division of The Southern Bank Company. altLINE offers specialty commercial lending products to businesses nationwide. He has over 5 years’ experience in small business operations and content marketing.
