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Finance toolkit: 10 alternative small business loans

by Samuel Williamson

4 min read

If you’re a small business owner, you’ll know that a stellar offering and strong work ethic don’t always guarantee success. The ability to generate steady cash flow, while steering your company through financial ups and downs, is equally important. Sure, you’re probably familiar with the traditional ‘term loan’, a commercial loan that’s usually paid back over a designated period, subject to either variable or fixed interest. But, because term loans sometimes lack flexibility, it might not be the best path for your small business.

Here, we’ve compiled 10 alternative small business loans to consider for your startup or for business development.

1. Unsecured business loan

Term loans give you access to finance but they often ask you to pledge collateral – like residential or commercial property – to close the deal. What if you don’t own your home? Or if the notion of borrowing against your assets causes you stress? Unsecured business loans don’t require your business to put up collateral, and are often easier to obtain. It’s worth remembering that income and credit requirements are still a deciding factor.

2. Line of credit

Business owners know that an especially lucrative quarter doesn’t mitigate future drought. That’s why a revolving line of credit designed as a long-term debt facility can sometimes be a flexible, convenient option. Credit card interest rates can often be crippling, but a line of credit means you often only pay for the portion of your debt that you use. This option is an especially good choice if you’re expanding your business or investing in new assets.

3. Invoice finance

Everyone running their own business knows the pain that comes with waiting for a big invoice to clear. Invoice financing allows you to avoid cash flow setbacks, pay wages, and invest in operations, based on amounts that are outstanding from your customers. So, late invoices don’t have to equal financial paralysis.

4. Merchant cash advance

Often, business loans come with extensive paperwork, funding restrictions, and a lengthy approval process. But what if you don’t have time to wait? A merchant cash advance provides a lump-sum payment based on future credit or debit sales. As far as funding streams go, it’s generally fast, flexible, and efficient.

5. Equipment finance

Depending on your line of business, chances are your profits are governed by your access to and the condition of certain equipment or tools. Instead of applying for a term loan to finance an asset, equipment finance lets you access credit for project tools or equipment that are essential to operating your business.

6. Hire purchase

In a case where your business could benefit from a new asset but you can’t quite afford to foot the whole bill upfront, hire purchase could be your ideal solution. Hire purchase schemes allow you to lease the asset under a purchase contract, and pay it back over time. You assume full ownership once the entire amount has been finalised.

7. Commercial bill of exchange

Over the lifetime of your business, you might need access to short-term funding, whether you’re fitting out new premises or dealing with demand for new stock. A commercial bill of exchange extends a fixed sum advance for your purchase – as long as you’re prepared to put up some sort of security. Interest charges are processed periodically and the closing amount is paid at the end of the term.

8. Personal loan

If you’re struggling with cash flow and debts are proving difficult to manage, a personal loan could be a sensible choice. Although a loan of $20,000 is usually a straightforward amount to borrow from most lenders, be prepared to provide a detailed breakdown of how you’ll use the money if you’re asking for more than this.

9 Business credit card

Unlike a personal credit card, business credit cards are available to all kinds of businesses – including sole traders. They’re also exempt from an individual’s credit report or credit scores. It’s worth noting, though, that if a business can’t repay its credit card bills on time, the business owner is responsible for the debt.

10. Peer-to-peer lending

Peer-to-peer lending matches borrowers with investors – either individuals or companies – who are looking for investment opportunities. Although avoiding financial institutions can mean less red tape for both lenders and borrowers, peer-to-peer lending is conducted over an online platform that acts as a middleman. Vetting your platform choice is a critical part of this process as they are responsible for assessing risk and typically charge a fee to both parties.

Term loans are often the first port of call for small business owners. But educating yourself about your financial options could mean gaining more control over your bottom line.

Read more about small business finance here.

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