Denied a Business Term Loan? Here are 6 Alternative Financing Options
Ezra Cabrera | October 23, 2019
When it comes to running a business, things don’t always go as planned – like for example, being denied a business term loan. If credit, cash flow, or working capital are the reasons why your loan got rejected, applying for a traditional business term loan may not be the best option.
Traditional lenders may be more willing to provide you with alternative funding options, like a small line of revolving credit. However, the type of funding suitable for your business depends on the amount of money you need and when you need it. If you are looking for alternative financing, here are six options you can check out.
1. Online Lenders
Online lenders are more lenient and flexible compared to banks and other traditional lenders. They are willing to work with your current situation, so you’re more likely to secure funding from them. This is beneficial for business owners in need of immediate funding and who cannot afford to wait for months to improve credit and working capital.
Online lenders like SMB Compass offer different types of loan products, including a business term loan. Some of the loan products online lenders offer are bridge loans, business lines of credit, inventory financing, invoice financing, purchase order financing, equipment financing, and more.
2. Invoice Factoring
Invoice factoring is a funding solution that frees up working capital that’s tied to your pending invoices. With invoice factoring, you sell your pending invoices to an invoice factoring company or a ‘factor’. The factor will usually give you 85% to 95% of the total invoice value upfront. Once your customers pay their dues directly to the factor, the factor will then send you the remaining invoice value minus a factoring fee.
Invoice factoring is best for businesses that want to address cash flow problems immediately but don’t have enough credit to qualify for traditional loans. Unlike other forms of financing, credit is not a major concern. Factors mainly consider your customers’ ability to pay their dues. This makes invoice factoring a great choice for startup companies. But obviously, you’ll only qualify for invoice factoring if your business processes invoices.
It’s also important to note that the factoring fee may be quite steep, but the cost should be worth it if you need fast cash. Invoice factoring is also beneficial for business owners who don’t like to chase after clients and collect payments.
As the name suggests, microloans are smaller loans that don’t usually go over $35,000 and typically stay within $5,000 to $10,000. These loans have lower interest rates compared to larger loans. Microloans are usually for startup companies that need working capital to kick-start operations.
Woman-owned, veteran-owned, minority-owned businesses, and other businesses owned by under-represented groups are the type of market where microloans are prevalent. Even companies with bad credit qualify for microloans.
Banks are typically not interested in lending small amounts of money, but alternative lenders are more comfortable providing microloans to small business owners.
4. Business Line of Credit
A business line of credit is a viable option if you need funds immediately. Once approved of a line of credit, lenders assign you to a predetermined credit limit where you can withdraw funds from as needed. You only have to pay for the amount of money you’ve withdrawn plus the interest. Credit limits can range between $10,000 to $1 million. Since it’s a revolving credit, you don’t have to pay every month.
5. Merchant Cash Advance
A merchant cash advance is not a loan, but it’s a cash advance against your future credit or debit card transactions. If you need cash ASAP, you can receive funding within one to two business days. Lenders give you a lump sum and you don’t have to pay a fixed monthly payment. You repay the advance every time a customer pays using their card. You can only qualify for a merchant cash advance if most of your transactions are from debit or credit cards.
6. Equipment Financing
If your main goal in applying for a business term loan is to purchase equipment, equipment financing may be a better option for you. Lenders will provide you with the money you need to purchase equipment and machinery for your small business. Unlike traditional loans, you won’t have to put up collateral because the equipment purchased serves as one. If you default on the loan, the lender has the right to repossess the equipment.
Apply for a Business Term Loan from a Lender You Can Trust
Online lenders like SMB Compass offer the alternative loans mentioned above, including a business term loan. We have a team of financial experts who are willing to help small business owners in finding the best source of financing for them.