Alternative Finance: Where to Go When Banks Say No

Alternative finance options can keep your business in business if the banks says "No." Sometimes, the very conditions in your business that make borrowing money necessary - cash flow issues, slow-paying customers, unexpected equipment needs - weaken your loan application to traditional lenders. If that’s the case, consider these five means of alternative finance. In some cases, they may even be more effective options for your firm than borrowing from the bank.

Talk to Your Suppliers

Who does your business buy from? Whoever that is, they want you to stay in business. In many retail operations - think of independent appliance companies - the supplier of expensive items will finance your inventory. This can take the form of a loan or delayed payment options. A supplier has a critical stake in the success of your business and can offer loans.

Factoring Your Receivables

Whether you own a small business or a large, factoring is a well-accepted alternative finance option. For a large firm, a factoring company buys uncollected bills your customers owe you. Your business’ collection history and the accounts receivable are all the collateral you need.

For small firms, factoring is often called “cash advance” lending. If you allow customers to purchase with credit cards, the cash advance lenders will give you money for the credit card receivables.

In both cases, the amount your business is paid is less than the amount your customers owe you. The factoring lender pockets the difference as their payment for taking over the risk of collecting your bills.

Venture Capitalists

What if you have no receivables, or don’t even have a business yet but hope to start one? Because of the risks associated with start-ups, banks seldom offer help and even some alternative finance options such as discussed above aren’t suitable. Venture capitalists specialize in start-up businesses. They either have money of their own to invest or manage a pool of other people’s asset.

A venture capitalist will take an ownership stake in your business if the opportunity looks good. They offer guidance, expertise and access to additional funding if needed. They will focus on big opportunities, but if you have a small firm that has growth or expansion potential, you’re also a candidate.

Friends and Family

Many businesses find an alternative finance options from friends or family with money to invest. You should treat family or friend loans like business loans, because they are.  Agree to loan terms. Put them in writing. Treat the friend or relative like any other lender. For small businesses, this is a good alternative to traditional lenders that don’t want the risk, or venture capitalists, that target larger enterprises.

Credit Cards

Don’t overlook alternative finance options that may already be in your wallet. A business or personal credit card is little different than a revolving line of credit from a bank. You are pre-approved for an agreed amount of borrowing. You can access the funds when you want and for whatever purpose you want. Repayment terms are flexible.

The downsides are the high interest rates on credit cards and the ease of acquiring excessive debt by paying only the minimum.  Managed well, however, credit cards can function as a simple, effective alternative finance option.