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Are you struggling with cash flow as you work inside your small business start-up and are curious about the best types of alternative lending options available?
Traditional bank loans come with plenty of headaches. Let’s explore alternative ways to come up with the cash you need to continue moving forward.
Line of Credit
You’ll get a line of credit (LOC) from an online lender or your bank. It’s normally easier to get these online than from the bank, however. Lines of credit act similarly to a credit card.
You are given access to a sum of money that you can access at any time you need it. You might use your LOC for working capital or in an emergency. You aren’t charged interest until you borrow the money.
A short-term loan is an alternative lending option that is applied for on the Internet. This type of loan usually comes with a short repayment time period of a few months up to a year. It differs from traditional loans in the following ways:
- Lender is more concerned with daily cash flow, as opposed to credit score
- Total loan cost is higher (normally 10-60% of the borrowed amount)
- Gets funded faster (typically in 1-2 days)
- Repayments are more frequent (sometimes daily)
Be on the lookout for online predatory short-term lenders that charge large fees. Pay close attention to their interest rate facts. Find a reputable source, however, and you can have needed cash in a matter of days.
Merchant Cash Advances
These are similar to short-term loans in that they aren’t hard to obtain, come with higher rates and fees and are more expensive than normal bank loans.
This is less a loan and more an advance on future company earnings. Your lender “advances” you a sum of money and recoups it as a percentage of daily sales (plus interest).
A merchant cash advance doesn’t typically have a set payoff date. Instead, the lender will continue taking a piece of your daily sales until they are paid back in full.
These are smaller loans of $5,000 to $10,000 (sometimes up to $35,000) that come with a lower interest rate.
These are usually used to help a startup raise needed working capital. Veteran-owned business, women-owned businesses and minority-owned businesses are often served through microloans.
Microloan sources are normally not-for-profit and for-profit lenders, since traditional banks aren’t interested in servicing these smaller loan amounts.
Business Credit Cards
This can be a nice alternative to a formal loan process. A business credit card is useful for small or large ticket purchases and might even allow you to earn points.
This is a method of raising capital for your business from online peer groups. Four types of crowdfunding exist:
This isn’t an option for everyone. For example, Indiegogo and Kickstarter cater more to individuals raising money for a music album or movie, or a new & innovative consumer product.
GoFundMe is for charitable projects. Fundable, however, offers the crowdfunding option to more varied business types.
You don’t need to remain at the mercy of traditional bankers anymore. Use one or more of the above sources in order to get the capital your startup needs.