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There are many alternative methods of financing available to small business owners that chose not to take the traditional route and rely on the bank for funding. Peer to peer borrowing, factoring, advance pay programs and purchase order guarantee are 4 ways a small business strategize to accommodate limited cash flow situations.
1. Peer to Peer Borrowing
Peer to peer small business borrowing is a system using private loan lenders, where the borrower posts the details of the business loan he or she is requesting, including the amount, term, and maximum preferred interest rate. Private loan lenders now have the option to bid on the small business loan, and the best offer(s) will be accepted. The key to handling the risk factor is in the social aspect underlying this type of lending. The borrower’s payment habits are made public information for all their peers to see and this encourages the borrower to honor their obligation.
2. Factoring
Factoring can be a very fast way to get financing for your company’s business credit needs. Basically, factoring is using your accounts receivable as collateral for a small business loan.
When the accounts are paid, you pay the small business loan. In some cases, your outstanding accounts receivable are actually exchanges for the money from the lender extending you business credit. The lender takes responsibility for making the collections. Using factoring to obtain financing in the form of a small business loan is a strategy for building a strong business credit score. It can also be used instead of seeking additional investments where you may be required to give up a portion of the ownership of your company. Using factoring as an alternative small business loan can help to secure a steady cash flow for your small business when you have accounts receivable.
3. Advance Pay Programs
Every small business owner with credit card sales needs to know how to get a small business loan up front before the sales have occurred. Although this program can have a high price tag attached, it is one way to get cash for your small business very quickly. It is one way of boosting a weak cash flow when you, as a small business owner know that you will have strong credit card sales in the near future.
This is how to get a small business loan using your future credit card sales. The lender purchases a fixed dollar amount of your future credit card receivables at a discount. The lender gives you a lump sum of money immediately at the discounted amount. When one of your customers pays with a credit card, the lender collects the money from the transaction, and continues to do this until the full fixed amount of the small business loan has been balanced. This is not considered a “collateral” loan, but nevertheless, lenders for this type of financing have stringent requirements. Using an advance pay program to obtain a form of small business loan is a strategy for having access to operating capital for your small business.
4. Purchase Order and Supply Guarantee
In this scenario, a small business involved in the manufacturing of products or goods receives a purchase order (makes a sale) for goods from a customer. The small business does not have the cash required up front for purchasing the raw materials to manufacture the goods. The small business hands the purchase order from the customer over to a third party lender, who now assumes the obligation of billing and collecting the payment from the customer. The lender covers the cost of the raw materials for the manufacturer. The lender assumes the risk of the collection for payment and the manufacturing of the goods. In some cases, the supplier of the raw materials will guarantee the delivery of the raw materials by acting as the third party lender. This is a legitimate method for a small business to fulfill a purchase order when it does not have the time wait for a small business loan.
1. Peer to Peer Borrowing
Peer to peer small business borrowing is a system using private loan lenders, where the borrower posts the details of the business loan he or she is requesting, including the amount, term, and maximum preferred interest rate. Private loan lenders now have the option to bid on the small business loan, and the best offer(s) will be accepted. The key to handling the risk factor is in the social aspect underlying this type of lending. The borrower’s payment habits are made public information for all their peers to see and this encourages the borrower to honor their obligation.
2. Factoring
Factoring can be a very fast way to get financing for your company’s business credit needs. Basically, factoring is using your accounts receivable as collateral for a small business loan.
When the accounts are paid, you pay the small business loan. In some cases, your outstanding accounts receivable are actually exchanges for the money from the lender extending you business credit. The lender takes responsibility for making the collections. Using factoring to obtain financing in the form of a small business loan is a strategy for building a strong business credit score. It can also be used instead of seeking additional investments where you may be required to give up a portion of the ownership of your company. Using factoring as an alternative small business loan can help to secure a steady cash flow for your small business when you have accounts receivable.
3. Advance Pay Programs
Every small business owner with credit card sales needs to know how to get a small business loan up front before the sales have occurred. Although this program can have a high price tag attached, it is one way to get cash for your small business very quickly. It is one way of boosting a weak cash flow when you, as a small business owner know that you will have strong credit card sales in the near future.
This is how to get a small business loan using your future credit card sales. The lender purchases a fixed dollar amount of your future credit card receivables at a discount. The lender gives you a lump sum of money immediately at the discounted amount. When one of your customers pays with a credit card, the lender collects the money from the transaction, and continues to do this until the full fixed amount of the small business loan has been balanced. This is not considered a “collateral” loan, but nevertheless, lenders for this type of financing have stringent requirements. Using an advance pay program to obtain a form of small business loan is a strategy for having access to operating capital for your small business.
4. Purchase Order and Supply Guarantee
In this scenario, a small business involved in the manufacturing of products or goods receives a purchase order (makes a sale) for goods from a customer. The small business does not have the cash required up front for purchasing the raw materials to manufacture the goods. The small business hands the purchase order from the customer over to a third party lender, who now assumes the obligation of billing and collecting the payment from the customer. The lender covers the cost of the raw materials for the manufacturer. The lender assumes the risk of the collection for payment and the manufacturing of the goods. In some cases, the supplier of the raw materials will guarantee the delivery of the raw materials by acting as the third party lender. This is a legitimate method for a small business to fulfill a purchase order when it does not have the time wait for a small business loan.