Top Alternative Ways to Raise Capital for Business Expansion
Looking to finance your business expansion without going to the bank? Capital for growth or renovation can be hard to acquire without assistance from institutions, which is why it’s important to your lender wisely before even applying for a loan.
In this article, we will discuss the top alternative ways to raise capital for your business expansion. Chances are you will use a combination of two or these, but for most small businesses, one lender is enough.
A go-to manoeuvre by some businesses which involve selling receivables on your balance sheet at a discounted price to quickly raise money. The invoices can be virtually anything from medical services to manufactured goods. Some banks also have factoring practices, and there are also established factoring firms. Find factoring organizations via the International Factoring Association or through Google search.
Merchant cash advance
Last resort financiers that give small businesses cash today in return for a certain percentage of their future credit card sales. Unlike loans, however, MCA transactions involve a specifically targeted repayment amount, collected over as long a period as required until it’s paid off. Most deals are structured so that, according to a customer’s past performance, the MCA shop gets its money back, plus returns – in six to nine months.
Purchase order financing
Say for example you landed an order from a retailer, but don’t have enough materials to produce the product. Purchase-order financiers can help you with financing to purchase the material today and take a cut of the check paid by the retailer. PO shops prefer working with distributors and wholesalers rather than manufacturers tasked with adding a lot of value to raw materials.
Pre-settlement lawsuit financing
A method that allows you to borrow against future legal awards. Pre-settlement shops often advance in the neighbourhood of 10 percent of the expected settlement. Once you prevail, the financier takes its cut of the award, about 40 percent. If you lose, it gets paid zero. The cost of funds will depend on the perceived risk of the case as well as the length of time the advance is outstanding.
These are member-owned financial cooperatives that rely on a borrower’s business model or track record and less on credit score. These lenders usually grant smaller loans than traditional banks, but they are less stringent. You must be a member of the credit union before you can apply for a loan, but joining is often very easy. Credit unions are non-profit organizations, which means they don’t have shareholders to please. All excess earnings go back to members in the form of lower fees and rates.
Consumer instalment financing
This method is a twist on factoring for business-to-consumer arrangements featuring longer time frames. Let’s say for instance you sell delivered-food plans to people. Your customers can sign up for a monthly instalment plan, which will be paid over two years, but you need capital now. A consumer-instalment financing firm can buy those contracts at a discount to their current value.
The most common form of this loan used by businesses is through a credit card. However, unsecured loan providers like Kikka also provides fast small business loans which allow businesses to draw down as little as $1k at a time or the whole amount you’ve been approved for. You’ll only pay for what you use and if you repay the loan earlier than their standard six-month term, you’ll save on the total fee.
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