Is Alternative Lending the Answer for Your Small Business Needs?
Cash management is often one of the most pressing issues facing a small business. While many choose traditional loans to fund growth or current operations, other businesses will not qualify when underwriting requirements are too restrictive. For many reasons, alternative lending options have become more popular in recent years as conventional financial institutions tightened their credit requirements and lenders used the internet to reach viable businesses across the country.
Reason #1: Stellar Credit Is Not Required
Alternative financing products such as PO financing and factoring are not underwritten solely based on the credit of the borrower. Financiers offering these products typically look at the creditworthiness of the company that will be paying the purchase order or invoice. The company selling the PO or invoice must be able to deliver the goods or services as agreed but does not necessarily need high credit scores or a long business history to qualify.
Reason #2: Payment Terms Can Be Flexible
Some financiers structure repayment for lines of credit or installment loans based on the borrower’s actual cash flow. They may set up debit withdrawals from the borrower’s bank account for small weekly payments or vary amounts based on cyclical demand curves. Rather than taking out a loan, some businesses choose merchant cash advances for funding. Companies can sell a percentage of their future credit and debit card payments to the financier with payments based on a percentage of each day’s actual sales.
Reason #3: Cash Is Preserved
Cash is a valuable asset that may unexpectedly need to be deployed to take advantage of new business opportunities. An equipment sale-leaseback can allow businesses to purchase expensive equipment without a large outlay of cash. The lessor buys the equipment on behalf of the business and subsequently leases the equipment back to the company.
Reason #4: Tax and Accounting Benefits Are Possible
Working with an accountant familiar with alternative lending can lead to multiple financial accounting benefits. Companies acquiring equipment through sale-leaseback may realize tax savings by expensing lease payments rather than depreciating equipment. Merchant cash advance, factoring and PO financing are not normally considered loans and therefore may not be accounted for as liabilities on the company’s balance sheet. Accountants often estimate financial and tax consequences for applicable lending products before the business owner completes any loan applications.
Solving Cash Flow Needs
Non-traditional lending products could be the answer to solve your company’s cash flow needs. When conventional financing doesn’t meet your needs, or is not accessible at the time, alternative lending is designed to effectively finance the success of the business.
