Alternative Financing for Beginners

The world of business finance is vast and often confusing. For small businesses and medical practices, traditional financing may be out of reach or may not be the best fit for other reasons. If you find yourself in need of funding for your business, but not interested in traditional lending for whatever reason, consider alternative financing, which can take many forms.

Asset-Based Lines of Credit

Asset-based funding provides the borrower with a revolving line of credit based on a percentage of the business asset value. A company’s equipment, inventory and accounts receivable may all be considered assets for this purpose. A major advantage of this type of arrangement is that borrowed funds immediately flow into the business.

Unsecured Business Lines of Credit

This type of alternative financing solution can either be a credit card or standard line of credit and may or may not be approved based on the applicant’s creditworthiness and the annual revenue of the company. Interest rates are typically very good for those who qualify and are approved. An unsecured line of credit is an effective short-term solution for cash flow or working capital shortages.

Accounts Receivable (AR) Financing

This type of financing, also known as factoring, is different from many others in that it involves selling an asset, not borrowing money. The asset for sale in this case consists of money your customers owe you but have not paid yet. If you work on net 30, 60 or 90 terms, a factoring arrangement can help you by purchasing those accounts from you at a discount. You get the money, minus the discount, up front and your factoring company collects from your customers as their invoices come due.

Merchant Cash Advance

A merchant or business cash advance is an alternative financing option somewhat similar to AR financing in that the company borrows against future receivables. In this case, however, future credit card sales are sold to the lender for a lump sum. Once that amount is decided upon, it can be in your bank account in only a few days. Repayment on this type of advance is generally quick and easy as well, with daily payments being assessed based on the number and amount of credit card sales that day.

When you need funding for your business, whether for capital improvements, daily operations, growth or some other reason, don’t stop after look at traditional lending. There are many more alternative financing options than have been mentioned here and, depending on the exact circumstances of your business, these may best meet your needs.


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