During the Great Recession that affects most of the countries, small businesses had been struggling since then, and most of them are being banned from getting a bank loan to save their business. Due to recession, they have lost many customers that result from reduced sales and profit. Also, they cut down the number of employees to sustain their current business operations. Most of them have lost valuable and essential supply lines. Some have lost their good credit score, which makes it harder for them to get business loans.
Banks are not willing to have a transaction with small businesses due to recession issues. Before the recession, small companies and banks have a good relationship that provides funds and a line of credit. But because of this economic problem, all of these relationships dries out and has been erased in the scene.
Small businesses can’t save their lines of credit or get a loan from the bank because they have lost lots of customers, and their current sales can’t help to get a loan. In addition to that, many banks have implemented more strict lending guidelines for businesses.
Alternative Business Loans
When banks have been erased in the list of business owners, small businesses have decisions to use non-traditional business loans. Though some of these sources are not flawless and perfect as the banks, they have at least another option to keep their business from operating.
Here are some of the alternative sources of loans for businesses if a particular bank declines your loan request. Sometimes, these alternatives may need to combine two or three processes with supporting the financing that you need.
- Purchase Order Financing
Purchase order or invoice financing is quite similar to the traditional way of factoring, not until they have taken one step further from the usual. They guarantee the buyer’s order of the company’s product. They pay for the item or product that needs to be manufactured, then take their share and let the business have the rest of the money.
- Account Receivable Financing
Selling your account receivable book is called Receivables Financing. It is an alternative way to raise funds for your business working capital needs. While interest rates are sometimes higher than bank loans, at least you have additional options to get fund your business.
- Peer-to-Peer Financing
This kind of financing is quite the same with eBay transactions. How’s that possible? You may post the amount that you need on a peer-to-peer lending website and set the maximum amount of the interest rate that you’ll need to pay. Then, many potential lenders will see that post and will place a bid on your loan. However, you need to have a good credit score to join.
- Financing By Utilizing Hard Money Loans
The creditworthiness of the business is not required in a hard money loan. Though it’s a bit risky, because it needs collateral items to get the credit – it usually called the asset-based loan.
- Raise Money Using Your Inventory
Using your business’ inventory as the borrower’s collateral, business firms can accumulate money for their capital needs. Inventory financing, together with account receivable financing, is the most vital source of cash which can help every business to produce products. Also, both can be utilized for other business purposes.