Sources of Alternative Financing for Small Businesses

Entrepreneurs that are looking for an alternative source of lending for their small business might consider going to organizations that specialize in this type of financing. A very popular option is merchant cash advance. With this facility a small business owner is able to borrow money against his/her future sales.

The lenders who provide this type of financing do not follow the traditional form of lending where the bank looks at the credit rating of the borrower. What the lender focuses on is the accounts receivable belonging to the prospective borrower. These lenders will review the credit rating of the businesses the prospective borrower gives credit to and based on those credit ratings determine how much they are willing to lend to purchase those accounts receivable.

The entrepreneur will receive a quote from the alternative lender where they will offer cash upfront in exchange for the right to purchase the account receivables at a discount. The difference between what the current value of these accounts and what the borrower receives is the profit for the alternative lender. These lenders take on a tremendous amount of risk so they will charge higher fees than what a traditional lender would charge but they will also provide the prospective borrower with the quick cash they need to keep their business growing.

If you are an entrepreneur and looking for an alternative source of financing they will need to keep very detailed accounts with accurate records. The reason you need to do this is in the event you decide to go to one of these alternative lenders you will need to keep detailed accounts so they can be “assigned” to the prospective lender. The good news is that these loans are usually processed within 1-2 business days so the entrepreneur can have access to their cash quickly which is essential when a growing business is trying to meet its commitments like payroll or paying other debts.