Author: Elaine Pofeldt / Source: Wise Bread
In an ideal world, you’d be able to turn to your banker or business credit card to borrow money any time you needed it for your business. But not everyone has a long enough credit history or a high enough credit score.
If you’re losing sleep because you need cash quickly and traditional sources are not working out for you, it may be worth considering alternative financing.
The interest rates and fees can be significantly higher than for a traditional bank loan or on a great business credit card deal, but they can come in handy in a cash crunch.Here’s a quick crib sheet to help you determine the right type for you. (See also: 10 Smart Ways to Get a Small-Business Loan)
Take stock of industry-specific options
If you work in a field such as ecommerce, look into lending programs tailored to your industry or the platforms where you sell your products or services. One example is the Amazon Lending program, an invitation-only program for merchants who run Amazon stores, which helps them finance inventory.
Often programs like this are tailored to the cash-flow quirks of particular industries. If you’re not aware of lending programs specific to your industry, ask your trade association for ideas.
Consider factoring
In factoring — a type of financing that is often used by companies that sell merchandise through big retailers — you sell your accounts receivable to a company called a “factor” at a discount. In one common type of factoring, the factor buys your invoices and purchases the right to collect the money owed from your customers. Once your customers pay their invoices, you get the face value of the invoice, with a small discount subtracted, often in the neighborhood of 2 to 6 percent.
The factor will give you 70-90 percent of the value of the invoice up front, and the rest when the customer pays it.One reason some small-business owners like this type of financing is the factor bases the decision to buy the invoices on their customer’s credit, not the business owner’s. For instance, if you make a household gadget that a big retailer has stocked on its shelves, the factoring company would decide whether or not to buy the invoice based on the retailer’s credit, not yours. That could be a plus if your credit profile is not strong.
Borrow against your receivables
Another type of financing that may come in handy is borrowing against your receivables, particularly if you run a professional services firm. If you use…
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