Alternative financing offers businesses another method to obtain capital without having to turn to a bank for a traditional loan. Business owners can choose from a wide variety of alternative financing options including merchant cash advances, invoice factoring, revenue-based financing, debt financing, equity financing, and more. Alternative financing provides businesses with the flexibility to choose the best financing solution for their unique circumstances.
Credit Card Split
A credit card split provides businesses with an upfront advance of capital, that is repaid using a percentage of either debit/credit card sales or fixed withdrawals from a bank account. A credit card processing company automatically splits your credit card sales between you and themself. The percentage the provider takes is agreed upon when you sign the advance paperwork. This type of financing allows businesses to have working capital immediately to cover any expenses or cash flow shortages.
Rather than waiting for your customers to pay their invoices, invoice factoring allows you to sell your unpaid invoices to an alternative financing company. This company will advance you a large percentage of the invoice upfront, they then will send the remaining balance minus a small fee once the customer has repaid the total invoice value.
With revenue-based financing, a business may receive capital in exchange for a percentage of future revenue. A lender will evaluate your monthly revenue to determine the funding amount and payment caps. Revenue-based financing can help a business gain capital without losing equity or incurring interest on loans. Be aware that revenue-based finance is formerly and alternatively known as Merchant Cash Advance (MCA).
Debt financing is where a business will sell fixed income securities such as bills, notes, or bonds to investors. A company will borrow money and repay it all plus the agreed-upon interest at a future date. This may help owners pay off high-cost debts or reduce their monthly payments.
In equity financing, a business will give ownership shares to investors in exchange for cash. The amount given to businesses is dependent on the investor but does not have to be repaid. Instead, investors will have ownership claims on a part of your business and your future revenues. Equity financing offers financial freedom since there are no monthly payment expectations.
Requirements for Alternative Financing
Credit score is not a huge factor in qualifying for alternative financing. This funding can be extremely beneficial for startup businesses that may not have a lengthy credit history. The application process normally requires little documentation and can be completed online. However, terms and rates for alternative financing differ depending on the option and lender chosen. Most lenders offer lower, fixed rates in comparison to a traditional bank loan. They may also offer faster approval – many lenders approve applications within hours and provide funding within days of application. Alternative finance companies will use advanced technology and proprietary analysis to quickly provide businesses with capital.