Financing For Business: 3 Strategies To Get Small Business Capital
Entrepreneurs that are looking for funds when financing for business have had an
increasingly difficult time navigating the dangerous waters of the financial landscape in the last 3 years. Many lenders have lowered, reduced, or cut off many lines of credit in the wake of the worst financial crisis in 70 years.In the meantime, there are a three key things that entrepreneurs need to remember when searching for working capital to continue to grow their operations:
1.) Consider the SBA, or an SBA backed loan first. With a mandate from the government to lend to small business through commerical banks, they are the first best choice for any type of business loan. The upsides are the low rates that can be offered. The cons are that comparatively few of these loans are actually being approved and funded. Often these loans require big amounts of documentation and long funding times. If credit is less than perfect, as many businesses are finding in these tough times, chances are this may not be an option.
2.) Those companies that accept credit cards and have been denied by a bank can always try an unregulated, high rate and high fee merchant "cash advance" usually offered by their credit card payment processor. These are not actually business loans like an SBA loan, but are technically "advances" based on future credit card receipts of the business. As such, they are not regulated as loans and have no cap on the maximum interest rate that can be charged.
Often rates on this type of loan are in excess of 50% for a short term loan along with a mandate to purchase new equipment and/or switch credit card processors. Typically, such advances will also place a UCC lien on the business, meaning that if the business was liquidated or sold prior to the advance being paid off, the cash advance company would have a right to the money before the owner. Often, interest rates could change upward during the repayment period.
3.) A low cost alternative to a merchant cash advance loan is known as credit card receivable financing. This is a true business loan that will have rates that are 50-80% less costly than a merchant cash advance with no requirement to switch credit card processors or buy new equipment. There are also no out of pocket fees with this type of loan. These loans are also open to businesses with owner credit scores down to 550. Typical preapproval is 48 hours, with most businesses receiving funds in 7 business days.
Financing for business in this economy is an ongoing challenge that just got a little easier. With a new lower cost alternative to a merchant cash advance, many business owners are finding that weathering the storm is not nearly as difficult as it once was.
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