Business financing is something that almost every small business owner has to consider at some point or another. In the startup phase, in times of growth, and sometimes during a cash crunch, financing becomes something that is essential to the survival of the business.
Banks are the traditional go to for financing needs. The truth is however, that banks and credit unions are not a good fit for many businesses. Sometimes credit is an issues, but sometimes timing is the bigger problem.
In these cases, there are other small business financing options. There are ways to get funds fast, and with little red tape. Of course, there is a tradeoff for speed and convenience. Higher interest rates are common among non-traditional lenders, as well as fees. What are the options?
This is a common way to get some quick cash when receivables are not turning over fast enough. By selling open invoices to a factoring agency, you can collect a portion of the total immediately. The difference between what you receive and the invoice amount is what the factoring agency takes.
It can take a few days to sign up for a factoring account, but once you do, you can apply for cash at any time and have the funds pretty quickly. Sometimes you can have the funds in your account in as little as 24 hours. Note that the interest rates for this type of funding can be high.
Merchant Cash Advance
Merchant cash advance funding is similar to factoring receivables, except it works with credit card receivables only. A company will pay you in advance based on an expected number of merchant transactions, and they take a daily or weekly percentage of what you do receive in merchant transactions as repayment.
While the interest rate is typically high, the turnaround time is usually very fast, sometimes as little at 24 to 48 hours. In addition, the repayment plans are easier for many businesses to handle. The interest rates for this merchant cash advance funding can be high.
Credit Card Cash Advance
If you have a small business credit card and need cash immediately, you could choose this option. The best thing about it is that you can get your money right away from any ATM.
The other option is a cash advance check that some credit card companies provide, as the amount of cash that can be received from an ATM in one day is often limited.
The major drawback here is exorbitant interest rates. Credit card cash advances are costly. If you need cash immediately however, they may be the only option. If you go this route, try to do so only for those needs that are short-term so that the debt can be quickly repaid.
The need for cash can often catch you unaware. If you find yourself in the position of needing to cover a cash gap, these options can help give you time to come up with a more permanent solution.