A lot of people have great ideas for businesses but lack the money they need to launch it.
There are also a lot of new businesses that lack the capital they need to operate during those first few months.
Though it would seem as easy as getting a loan from a bank, most brand-new businesses are denied, and even if you’ve been established for a while, it can be difficult to secure the funds.
Fortunately, there are other options for getting the money you need to start or grow your business.
1. Business Loans
Though the bank may be a difficult lender to borrow from there are online lenders who offer business loans to new and established businesses. Companies like Lending Club have business loans for purposes like buying equipment, hiring staff, consolidating debt, and expansions. Though eligibility requirements will vary by lender, some of the requirements for obtaining a business loan includes:
- In business for at least a year
- Generating a minimum of about $50,000 per year in revenue
- Have a decent personal and/or business credit history
- No tax liens or bankruptcy filings
While some of the application processes can be completed online, ideally, you’ll have to fax documentation proving your eligibility. This typically includes bank statements and financial reports. Some lenders may also require you to have capital if you’re deemed a high-risk borrower.
2. Business Lines of Credit
For entrepreneurs who operate seasonal businesses, often need to purchase inventory, or just need additional funds to handle miscellaneous needs as they come up, a business line of credit is a better funding option. Unlike a business loan, a line of credit is revolving, meaning it can be used again and again. Similar to a credit card, the commercial lines of credit are attached to a card and available for use. Borrowers only have to pay interest on the portion of the funds they used.
Eligibility requirements are similar to that of a business loan which includes:
- Have several years in the business
- Collateral like accounts receivables, real estate, or investments
- Minimal debt to revenue ratio
- The business must be turning a profit
3. Merchant Cash Advances
Not every entrepreneur has decent credit or collateral to secure the funding they need. If credit or collateral is an issue, options like merchant cash advances can be used. A merchant cash advance isn’t a traditional loan. It is a lump sum of money that is provided to approved businesses in exchange for a percentage of your future debit or credit card sales. This type of advance is often best for those who have high credit card sales like retail and restaurants. Eligibility requirements for a merchant cash advance include:
- Being in business for several months to a year
- Having a credit score of at least 450
- Generate or be on track to generate at least $50,000 or more per year
4. Factoring or Invoice Financing
Established businesses who bill their customers can have periods where they’re unable to collect on what’s owed. As outstanding invoices can hold up much-needed capital, some small business owners look to factoring or invoice financing for relief. Invoice factoring companies will pay you for your outstanding invoices. Payments are generally made in two installments, the first being 80% of the outstanding balance being paid upfront. The remaining 20% is repaid once your customers pay the invoice. Eligibility requirements include:
- You have an established business
- You have invoices (some factoring companies will only work with businesses that invoice to government entities and other commercial businesses)
- Customers with good credit (meaning your customers are likely to pay for the invoice)
- Reasonable profit margins (10 – 15%)
- No liens
- Good credit history
When traditional loans are impossible to get approved for, there are other options that you can use to fund your business. Whether you decide to apply for a business loan, line of credit, merchant cash advance or invoice financing, be sure that you look for a product that offers the best interest rates and has the fewest eligibility requirements. Lastly, be sure that you repay the loan responsibly to ensure you can have access to cash when you need it without a hassle.