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Business Loans: Are They the Only Form of Business Financing?

Lots of small businesses out there rely on business loans in order to kick things off and promote growth during those early years. The problem with business loans is that banks are no longer dishing them out quite as liberally as they did prior to the financial crisis. This is posing a huge problem for lots of would-be business owners who simply don’t have the means to fund their own start up, or take their start up to the next level. This has caused a lot of small business owners and entrepreneurs to look into alternative business financing.

What are the options?

The good news is that there are various forms of alternative business financing out there – they include merchant cash advances, credit cards, overdrafts, and even angel investment. One of the most common alternative financing options is a merchant cash advance – they’re growing in popularity fast because they’re a lot more accessible than business loans.

With a merchant cash advance a company will buy a chunk of your future sales. As those sales are made, the company will skim off a small percentage in order to repay the cash advance. A merchant cash advance is like a loan in the respect that you get a large lump sum upfront, but unlike a loan the debt doesn’t accrue interest – and there are no fixed monthly repayments.

Banks tend to be a little more liberal when it comes to approving small businesses for credit cards and overdrafts – but these forms of financing tend to be geared towards businesses looking to borrow relatively small amounts of money in the short term. Angel investment is also something that business owners should look into – especially those in the start up phase. Funds from angel investors often don’t require any form of guarantee or collateral – but the flip side of that is that you have to convince an investor that your business or idea is worth them putting their money into, which isn’t always straight forward.

The Truth About Business Loans

There’s nothing bad about business loans at all – the main problem with them is that they are so difficult to obtain. Business loans bring many different merits to the table – fixed monthly repayments for example bring stability to businesses. It helps to know exactly how much you need to set aside to repay the loan each month – which is something you won’t know with a merchant cash advance or a credit card.

The simple fact is that a lot of business owners would love to get their hands on a bank loan, but circumstances outside of their control will prevent them from doing so. What you should take from this blog post is the fact that there are other forms of business finance out there – you’ve just got to persevere in your search. Some business owners will tell you that the alternative financing options out there offer many more merits than business loans – so even if you’ve been given approval for a business loan, don’t go signing on the dotted line before you’ve had a look to see what other forms of finance you can obtain. Don’t give up on your dreams of running a business because you’ve run into a few problems raising the cash you need – look into the world of alternative business finance today.

Applying for business financing can be a daunting task if it’s something that you have never done before. On this page you’ll find a brief explanation as to how the application and approval process works for two of the most popular forms of financing: Business bank loans and merchant cash advances.

Business bank loan applications

With a business bank loan, you’ll first need to approach your bank manager or business relationship manager to them you’re seeking finance. They will usually then be able to tell you exactly what is required for you to complete the application process – here are the most common things they’ll ask for:

  • A business plan
  • A cash flow forecast
  • A loan application form
  • Historic tax returns
  • Financial and performance data
  • Personal identification

Once you have the above documents drawn up, your bank loan application can then be reviewed. Typically it takes one to two weeks for banks to get back to you on the outcome of your application. Bank loans can be applied for online, but by doing it online you will still need to submit the above documents.

Banks will loan money to you based on sales figures and your cash flow forecast – they need to be convinced your business will have the means to repay the sum borrowed. When you’re applying for a bank loan make sure you look to obtain a realistic sum of money.

Merchant cash advances

The application process for a merchant cash advance is different to that of bank funding such as a loan. With a merchant cash advance application you’ll have to supply the following documentation:

  • Historic sales figures
  • Personal identification

Merchant cash advance companies are buying a chunk of your future sales – the way the money is lent to you is different when compared to a traditional bank loan. No interest is charged on a monthly or annual basis, instead you just pay a fixed percentage on top of the finance obtained – this is how they make their money.

Merchant cash advance lenders tend to pay less attention to things like business plans and cash flow forecasts – they place more emphasis on your historic sales figures and projections for the future. Applying for a merchant cash advance usually starts with a phone call or email – if you’re located near the company in question you may be required to pay them a personal visit to seal the deal, if not, a lot of cash advances are sealed over the phone.

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