Securing financing for your business is tough. It always has been for small businesses.
According to Wells Fargo, 77% of small businesses rely on personal savings for initial funding.
But it should get easier once you’ve been in business for several years, right? Not necessarily. The National Small Business Association surveyed its members and found that 27% of them still weren’t able to get the funding they needed.
Without necessary cash infusions, small businesses could be in trouble. This is particularly a problem for small businesses that need a loan to buy or repair a piece of critical equipment. When the funding doesn’t come, failure is almost inevitable. A study by a U.S. bank found that 82% of small businesses fail because of cash flow problems.
Believe it or not, getting the business financing you need is possible. Even if banks turn you down, there are other alternative financing options that you haven’t even thought of. In today’s article, we’re going to let you in on our financing secrets.
Problems small businesses have with financing
Banks have always been the traditional lending solution for businesses of all sizes. And they still are. For many small business owners, their bank is the first place they turn to when they need a cash injection.
However, since the credit crunch, business loans – particularly those to small businesses – have dried up. If the banks can’t make a hefty return on the loan (and they can’t on anything under $50,000), they don’t seem to be interested.
Alternative financing options for small business
Luckily for small businesses, the financing void left by the banks has been quickly filled by a number of alternative lenders who can offer the finance you need within a very quick timeframe.
Sounds too good to be true, right? It always is.
As with everything, there’s a downside. These “alternative loans” often require daily payments and come loaded with high fees that make the APR (annual percentage rate) skyrocket. If these aren’t suitable, other alternative financing options exist. Some don’t even require you to take out a loan.
Merchant cash advances
A merchant cash advance is a type of business financing that owners can take out against their future sales or other business receipts.
Repayments are usually made daily or weekly and are typically repaid by a percentage (usually 10%-50%) of the business’ gross daily receipts. They are sometimes set up to be repaid in fixed amounts.
Merchant cash advances are a better option for established businesses rather than start-ups as you need a history of steady receipts. Even if you have bad credit, you can still get accepted.
Merchant cash advances can be an excellent solution for businesses in need of an immediate cash injection. But they can also put a significant strain on your business’ cash flow. In some cases, business owners struggling to pay off the merchant cash advance and their other bills have little option but to refinance and roll over all of their debts into a new loan with higher interest rates, or a new merchant cash advance
Crowdfunding isn’t just an option for would-be start-ups; established companies can also use this platform if they need financing but can’t get a bank loan.
For those that don’t know, a crowdfunding platform lets individuals contribute towards your business or product in return for exclusive benefits. This might be a discount on the item you’re selling, but it can also be experiences such as a tour around the business or a meeting with the owner.
Pebble, a smartwatch manufacturer that was recently acquired by Fitbit, started on Kickstarter. But even after the company was established and perfectly able to raise capital by itself, it returned to Kickstarter to raise funding and launch its second line of products.
If you have a business or product that a lot of people can get excited about and might want to invest in, crowdfunding platforms could be a solution. However, they aren’t for everyone. And even if your business is suitable, it can take a long time for the funding to come through.
Short term loans from alternative lenders
The banks aren’t the only place to get business loans anymore. There’s a huge selection of lenders, most of which operate online, who can provide quick business loans to businesses that get turned away by the banks.
These loans are often unsecured and come with higher APRs than bank loans. Payments are made daily or weekly and the interest can quickly compound if you don’t pay on time. You can get cash fast by using one of these lenders however, and approval times typically take only a couple of days.
Renegotiate credit terms with suppliers
Loans aren’t the only way for businesses to get a cash injection. Many businesses struggle with cash flow because they have as much going out in the form of expenses as they do coming in through sales and receipts.
One way to increase your positive cash flow, therefore, is to negotiate with your current suppliers. Try extending your payment schedules by a couple of months. If you are successful, you’ll suddenly find yourself with a surplus of cash that is the equivalent of taking out a short-term loan.
If you want the cash injection to last more than a couple of months, renegotiate your pricing with your vendors. If you have shown yourself to be a loyal customer, they will probably be open to offering you more favorable rates. After all, a good, loyal customer is valuable and they will not want to lose you!
Restructure or consolidate your existing business debt
A lot of businesses turn to loans like merchant cash advances to pay off existing debt. What a lot of businesses don’t consider, however, is restructuring or consolidating that debt instead of trying to pay it off with new money. If you have several different debts that you’re trying to pay off at the same time, consolidating them into one affordable payment can make everything more manageable.
For larger debts, restructuring the debt or settling it outright can be an effective solution. You can even pay off a significant part of the original sum but not all of it, and renegotiate the rest. With the debt settled or renegotiated and your payments lowered, you may not need a business loan at all.
If this is a route that interests you, it is crucial that you speak to a debt settlement expert. Here at Creditors Relief, we’ve helped hundreds of small businesses owners like you avoid expensive and unnecessary financing options by restructuring and consolidating their debts instead.
To get relief from your debts, call us for a free phone consultation on 877-312-6478. Today is the day you say no to expensive financing options and yes to a debt free business. We’ve settled millions of dollars in business debt for businesses located throughout the country and we can do the same for you.