Sometimes, businesses need a little extra help financially. You might need to seize a particular business opportunity or you may need to cover an unexpected bill.
Getting a traditional business loan can be difficult for various reasons. It can be inflexible in terms of monthly repayments, it can be time consuming, paperwork loaded and require several credit checks, and it can also be difficult to meet strict eligibility criteria.
However, there are various alternatives that a small business owner might consider before giving up hope on gaining vital business finance.
One option is crowdfunding.
Crowdfunding is a way of raising the money you need via a pool of investors, rather than one sole investor. This gives the business in theory more chance of gaining the capital required as one investor can donate even a small sum of money. The company “pitch” their idea via a crowdfunding platform, like on a website, and gain interest for their business plan/project. If the target is reached, the company get the money required.
Of course, the investors are rewarded in some way – either through equity or the product or service the company offers. For example, a travel agent company might offer heavy discounts on future holidays booked with them.
One other option is bank overdrafts.
This is ideal for companies that have fluctuating income. The bank overdraft can provide the small business owner with additional funds that are quickly accessible. The idea is that you dip into the overdraft when you need it and on lighter months you can repay the overdraft, taking your working cash flow back to a steady rate.
The problem is many businesses end up using the overdraft and then struggle to repay the debt. Also the bank can (and does) call in the debt when they choose, which will severely affect the cashflow of your business.
Another option is a merchant cash advance.
This financing alternative allows you to repay your advance by taking a fixed percentage of your credit and debit card transactions when your customers pay. You can be advanced anything up to £500,000 and need to be processing over £3,500 a month in credit and debit sales to qualify. You can also top up this advance when a certain amount has been repaid and if certain conditions are met.