Can't Get A Business Loan?
by Business Money Today - August 24, 2009
It's time again to revisit alternative financing strategies for business owners needing money. Whether your business needs capital to grow, meet payroll, or to just simply survive, there are numerous alternatives for your company when banks so 'NO'.
Personal loans are no longer real, viable options for business owners. Banks have tightened their purse strings on personal credit just as they have with business credit. This tightening typically has everything to do with the state of your credit and value of your collateral; if you have assets. Most business owners have destroyed their personal credit histories trying to stay afloat in an economy where spending is down and customer payments are late, extended or non-existent. Further, over the last two or three years, many entrepreneurs have already encumbered all of their personal assets, leaving nothing of value to collateralize.
However, there still remain many alternatives that may still be available to your business. These alternatives allow business owners to capitalize on their previous hard work; be it from building relationships with suppliers and other business partners to closing sales and building a strong customer base:
Using Business Relationships!
Trade Credit: It never hurts to work with your suppliers. Ask for better terms; either more discounts for early payments or longer time to pay. Here you can reduce your overall costs or allow more time to collect money from your customer before payment is due to these suppliers. Now, your suppliers may baulk at this discussion as they are probably feeling the same pinch as you are. However, impress upon them that it does their business no good (short term or long) if you go out of business, have to cut back your standard orders, or are forced to find other suppliers who offer better terms. You have the power - use it!
In conjunction with trade credit, do all that you can to collect your receivables from your customers, as soon as possible. If your suppliers offer you discounts for early payment, offer the same to your customers (just maybe not at the same magnitude) or offer discounts for cash or immediate payments. This allows you to collect payments faster as well as reduce your costs by paying less for the goods you need to run your business. Just remember, in this type of economy, cash is king.
Using the Strength of Your Customers!
Receivables and/or Purchase Orders: If your business has accounts receivables sitting on its book just waiting to be collected, you may be able to get cash for those assets NOW. There are cash advance companies (not banks) that specialize in purchasing your receivables. These companies will purchase your invoices for up to 80% of their face amount. They will then work with your customers to collect these receivables (saving you both time and money on collection). When the invoices are paid, these companies will refund to you the remaining 20% of the invoice amount less their fee. This type of funding is great for growing companies facing immediate cash crunches. Further, the majority of these cash advances focus more on your customers' credit and business strengths than yours.
Many of these same companies will also finance your purchase orders. You have customers with standing orders but not the capital to complete these jobs. Get funding for supplies, materials or even labor - get the orders completed and out the door as this is the only way you will get paid and grow.
Credit Cards: I not saying to go out and get more credit cards. If your business accepts credit cards, there are companies (again, not banks) that advance cash to your company based on your FUTURE credit card receipts. These facilities are only paid back when your business generates additional credit card sales. Thus, if you have a slow month, you are not stuck with a huge monthly loan payment. As your credit card sales ebb and flow, your repayment of these advances will ebb and flow in tandem.
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Using Your Character!
Need just a small amount of cash to get you by? Try social lending sites like Prosper.com or Lending Club. These sites create peer-to-peer social lending networks where members lend and borrow from each other. The benefits of these programs include getting the money you need, possible lower rates and better terms than most banks offer and you get to tell your story directly to the members who will fund your loan request.
Similarly, there is Micro-Credit companies. The largest in the US and around the world is ACCION USA. Micro-finance companies limit their total out lay to a maximum of $35,000 per loan for start-ups and up to $50,000 for existing businesses. However, most micro-credit funders like to build relationships first with their borrowers. Thus, they may only approve smaller amounts in the beginning and increase your loan amount as you pay back each facility or as your need increases. These companies tend to only work with businesses that have been turned down by traditional banks and other financial institutions.
Never forget your friends and family. These are the people who know you best and may better understand what you are trying to do with your business. There are many cons when borrowing money from those closest to you but new companies like Virgin Money will help you manage these relationship - keep the business side separate from the personal side. Just keep in mind that being an entrepreneur means discovering and utilizing all avenues available for your business to succeed.
Now, while there is a lot of focus these days on traditional banks, most communities also have Credit Unions. Credit Unions are not-for-profit organizations. Thus, they do not have to worry about Wall Street or shareholders. While the majority of Credit Unions have yet to fully adopt commercial lending departments, they should have lending programs in place that can meet your business needs from deposit products to personal loans and credit cards.
Some of these alternative options may be a little more expensive, overall, then having a single credit facility with a bank. But, they are also a sure fire way of leading your company through our current credit drought. The key to success is to do your homework. Find the program that best fits your needs and that will provide the greatest benefit at the lowest cost to your business. Some business owners tend to panic a bit when they begin to feel the credit pinch. It is only natural. But, keep your eye on the long term. Don't just settle on the first source that gets approved, find the best for you. Be diligent!
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Any cash advance, factoring or similar product applied for are meant to provide short-term financing only and should not be considered a long-term solution.
Can't Get A Business Loan? - Business Money Today