For many investors and business owners, the first place they will go to seek out a loan is a bank. Banks typically have lots of experience lending money, and if you can secure one, bank loans can be affordable and reasonably easy to manage.
However, not every prospective investor will qualify for a loan. Sometimes banks are reluctant or simply unwilling to lend to individuals without a long financial history, or with subpar credit scores. In such cases, considering methods of alternative lending can be essential to securing funding for your given project. Below are three alternative methods worth considering.
Crowdfunding is an increasingly popular means of funding projects. In what may be its most common perception, this technique involves seeking a large number of small donations from investors in a new business or project. Typically, investors receive a small gift for their investment, or maybe a very small amount of equity in a new business. The increasing popularity of platforms like Kickstarter and Indiegogo has made this fairly common.
Another means of crowdfunding involves doing much the same thing, but with a small number of large dollar donors. These individuals or groups — like venture capitalists — typically provide substantial cash up front in exchange for an ownership stake in the business.
While the first method can be quite successful in some cases, it can also be difficult to raise a great deal of money for a unknown businesses or business owner. Then, while the latter method can often provide substantial cash, it requires a new owner to give up a stake in his or her business.
An asset-based loan is exactly what it sounds like: money lent on the collateralized basis of some asset, which might be property, inventory, equipment, or something else. While typically not a means to fully fund a new business or project, an asset-based loan can go a long way towards generating needed capital. These loans are also typically quick to secure, and have few restrictions.
B2B loans are another increasingly popular way to fund new business projects. Under this system, one business or several businesses lends money directly to a new business or business owner. This can sometimes be an effective way to access cash if you’re unlikely to be approved for a more traditional loan.
Ultimately, having trouble securing a bank loan does not mean your business plans are dashed, and there remain a number of alternative ways to raise money for a new business or project.
Accounts receivable financing (AR financing) is a viable option, especially for small businesses that need fast cash. Check out a few of the advantages below:
Increase Cash Flow
As a business owner, you always have a variety of needs and each of those needs require money. You have to pay your employees. You need to save up for seasons when you might not have as many sales. Sometimes you need to spend money on maintaining or upgrading your equipment or technology. Other times, an opportunity arises in the form of expanding your office space or adding a new location. You might have an exciting project coming up or innovative ways to expand your business and reach new customers. All of these things require you to have cash on hand and that’s when an option like accounts receivable financing can come in handy.
Qualify More Easily
When it comes to qualifying for traditional loans, sometimes the requirements can be too great a hurtle for businesses to jump. If your credit score is too low, you haven’t been in business for a long time, or you need a relatively small amount of money, you might not meet the rigorous standards set by your local bank. Furthermore, if you’re hesitant to risk your personal property by using it as collateral or you just don’t have what your bank is looking for to mitigate the risk of offering you a loan, you might have to consider other options. With AR financing, your lender will be looking at your customers’ credit ratings, giving you less to worry about as you seek to qualify for the funds you need.
Get Access to Fast Funds
Depending on your contracts with your customers, you can be waiting several weeks or even a few months to receive payment for your products and services. And some customers are simply tardy in fulfilling their obligations. In the meantime, you have everyday expenses that don’t stop for lapses in cash flow. You have to pay staff members, rental rates for your office space, production costs, etc. You could try applying for a traditional loan, but even if you qualify, it might take a number of weeks for you to receive the funds. Especially in the case of an unexpected event, that might be too long. Instead, consider AR financing: You could receive the money in just a couple of business days and soon be on your way to putting it to good use.
Sometimes you need to think outside the box to find a solution – in that case, AR financing might be just the answer for you.
If you are interested in starting a business, a franchise can be a great opportunity. It comes with the independence of owning a business and the support of a large corporation. Despite that, you still need a significant amount of cash to open and run it. Most people do not have that amount of money in the bank waiting for a business and opportunity, so they might have to opt for franchise loans. Here are a few popular options for financing a franchise.
Before you explore other financing options, approach your prospective franchisor first. Most businesses with this kind of business model usually offer financing solutions to their franchisees. If you work with a franchisor that offers a financing program to franchisees, you do not have to explore other funding solutions,
Another way of getting franchise loans is through traditional loans. It is the most common go-to solution when people want loans to finance a business. How it works is that a bank gives you a large sum of money upfront, which you repay in installments plus interest over a specific period. The bank has to review your business plan to check its viability and access your personal credit history to determine if you can repay the loan.
An SBA loan is usually an attractive option for anyone looking to start a business. SBA loans also follow the same model as traditional banks and alternative lenders. You can explore this option and see if you are eligible as it comes with its set of benefits.
Entrepreneurs can also get franchise loans from alternative lenders. They are less strict, and they offer different loan options like equipment financing. However, they can be expensive as they come with a short term for repaying the loan, and the amount offered may be lower.
Another creative way of obtaining funds for your franchise is through crowdfunding. Setting a crowdfunding page allows you to access funds if you find people interested in your business idea and ready to finance it.
Another way people can access franchise loans is through friends and family. You can either bring them in as partners or ask them to loan you the cash. Ensure you draw a loan repayment agreement to avoid conflict.
If you feel that being part of a franchise is a great business opportunity, you can explore the above financing options. You can also reach out to Advanced Commercial Capital LLC for the funding assistance you need to get your business running.
Franchising is a popular business model in the United States with over 750,000 franchise establishments in operation across more than 3,000 different franchised concepts. For entrepreneurs, franchising offers many benefits compared to starting a business from scratch. For example, franchised concepts have a developed business model with some amount of established awareness, corporate office support, training, and other features. Yet, there are still challenges faced in buying a franchise including getting franchise financing.
Some of the challenges faced by someone who is eager to buy a franchise include some significant costs. Startup costs include a franchise fee, potential real estate and build-out costs, expenses for supplies, inventory and daily operations, personnel costs, and marketing costs. For most new owners, these costs require franchise financing.
Other challenges include the learning curve present for every new enterprise as well as dealing with (and having patience for) the ups and downs of business.
And there are some risks including having insufficient capital and choosing the wrong location.
There are many good ways to get the franchise financing that is needed to start your franchise:
Many franchisors will offer financial assistance, either from the corporation itself or from partnering financial sources.
Commercial bank loans are the traditional second “go-to” after consulting with the franchisor for their assistance.
SBA loans are an excellent avenue for a new franchise owner. These loans are specifically focused on small businesses. They are available from banks and other lenders and guaranteed by the SBA, and they offer favorable interest rates and payment terms.
Alternative lenders offer good ways to get the franchise financing that is needed.
Getting approved for franchise financing requires a good business plan, a good credit score, and may also require a down payment and/or the pledge of collateral.
Contact Overhead Capital Ltd. for financial solutions to address your franchise purchase and ongoing capital needs. Our experienced financial professionals can help you secure funding to meet your business’s financial needs and goals.
As strange as it seems, factoring has been around for some time and is actually one of the easiest ways to speed up your cash flow. In the past few years, it’s become more prevalent, due to the growth and expansion of alternative financing. How much do you know about it? You probably don’t know not as much as you might think.
A financing company buys your outstanding invoices, paying you approximately 85% of their value. They contact your customers and let them know that they will be collecting payment instead of you. After the customer pays their invoice, you will receive the other 15%. Of course, you must pay a percentage, as well as any additional fees the company chooses to request.
Before you decide if this is right for you, you’ll want to think about the advantages versus the disadvantages.
Quick access to working capital
Credit standing doesn’t matter
Can be expensive
Typically, there are two reasons a company decides to use factoring: its quick and easy, which means it’s great for companies that need money right way but have not established their presence.
Small- to medium-sized companies benefit because it allows them to expand and serve their clients better.
There are several misconceptions about factoring, due mainly to the spread of false information. Here are a few of them:
It will alienate your customers.
It only works for large companies.
It means your company is not stable.
Factoring is gaining popularity, mainly due to the fact that banks aren’t lending money as readily as they have in the past. Instead, businesses are looking for alternatives to financing and factoring is a great option. Contact Overhead Capital Ltd. today to learn about our factoring solutions.
Fitness centers are essential for people trying to maintain their physical and mental health. However, starting a fitness center and running it as a business calls for you to consider several factors. Having the right funding platform for the business is one of the main factors. But how do you get the right business funding for your fitness center?
Through your business plan, you express your desire and vision for the new fitness center. In the business plan, you also describe your experience and expertise in the industry, making it possible to attract investors and secure business funding. You have a higher chance of making your dreams a reality when you have a realistic business plan.
You should note that lenders will need to see your projections to get the funding you need for your business. This is after solid industry research concerning your business model. The startup and operating costs, to a larger extent, tell the lender how you will use the funds for business growth.
When you compile relevant financial information and documents, the loan application process becomes easier to navigate. The application requirements differ with the lender. Seek to understand the type of information and documents the lenders need to increase your chances of getting business funding. The process can be hectic for a gym company as you also need to adhere to safety and health protocols.
A partner makes it possible to have a productive business management process in the fitness center enterprise. Seek a business partner with complementary skills and with the ability to finance your business. You can consider a limited liability partnership or limited liability company for your fitness center enterprise.
Local businesses can provide the sponsorship that you need for your fitness center enterprise. You can solicit local businesses to sponsor advertisements within the gym and, in return, get help in offsetting operational costs. You can also get additional income to help run your business. If the local business offers complementary services to your fitness center, you should consider working together.
Getting sustainable business funding for your new fitness center can be hectic when you lack guidance. Reach out to Overhead Capital Ltd. today to learn more.
There is an endless supply of commercial real estate. From gas stations to industrial buildings, to municipal buildings to apartments, to office buildings and even cemeteries and synagogues. There are lot of options for investors looking into commercial real estate, but the question is often: Which type of commercial real estate property is the best to invest in?
Flex spaces, light industrial complexes and spaces, are always in demand. They are easy to lease, easy to maintain and the tenants typically always take good care of these spaces since they’re designed partially for business and partially for living. Apartment and multifamily properties also carry some of the lowest risks in the industry with the only downside being the high cost of maintenance and management.
Self Storage units have withstood every economic downturn in history and always manage to stay on top. They are easy to maintain with little maintenance due to the lack of live-in tenants with the only downside being that the industry is incredibly competitive. Self Storage businesses pop up next door to each other, competing for customers by offering the lowest price possible while including highest level of amenities that make sense. On the other hand, mobile park homes have proven to hold almost zero risks as long as everyone owns their own mobile home. There are no buildings or repairs needed. Most of your money will be spent in landscaping and lighting; the renters generally take care of their own area.
Single-tenant, single-use buildings (i.e. car dealerships) carry the highest investment risks available. Due to being so specific and expensive, when they’re good (you have a tenant) they’re good, but when they’re bad, they’re awful. This kind of investment is also, oftentimes very hard to sell due to the enormous space and specific layout needs.
While flex spaces are always a good investment, multifamily homes — between 2 and 4 units — and co-working spaces are in the most demand. Multifamily homes with under 5 units are often financed just like primary homes and thus come with traditional bank loans and low interest rates as opposed to actual commercial loans which are generally harder to get and come with significantly higher interest rates. With the pandemic and everyone working from home, the need for office space has greatly come into question leading to the rise in demand for co-working spaces. Co-working spaces allow businesses to save on overhead costs while still having a physical location to come to if necessary. These two types of commercial real estate are your best options for immediate returns.
Contact Overhead Capital Ltd. today to get your commercial properties financed successfully.
Although risky, there’s a lot to be gained by acquiring other companies. Outside of the possibility for financial gain, you also gain the opportunity to add new skills, new expertise and new perspective to your business portfolio. Financing a business acquisition can be a little tricky, but here are 10 different ways you can move forward in business acquisition financing.
It’s very rare that a company has the capital immediately ready to buy a business in cash; however, even if you do, it may not be a good idea to use of the company’s money up front. Business acquisitions are risky and there are other options available that pose much lower risks.
If you’re merging company’s to create a new identity, company equity is a great way to finance the merge. You’re able to keep your cash, retain the seller’s expertise and boost the morale of staff during the transition.
If the seller was already considering selling or leaving the company, or even retiring and is flexible on the payment terms, earnouts are a fantastic option for them to continue receiving benefits (revenue) from the company as they are phased out. A percentage would be paid up front with an agreed upon percentage being paid out yearly, for a set number of years, based on the company’s revenue for that year.
LBOs revolve around the leverage of the company’s debts in which the buyer leverages the debts against the assets of the business being purchased. The buyer is then responsible for the debt.
Traditional loans a very common in business acquisition financing, they typically come with specific acquisition restrictions (e.g., time limits) so shop around and read the terms carefully.
SBA-backed loans guarantee a portion of the loan to the lender. Because of this they carry low interest rates and are extremely competitive.
Asset-based loans are financed based on the liquidity of the company’s assets.
Issuing bonds is a very complicated process that forces the seller to have a very thorough plan in place in order to pay off the debt. There is an incredible amount of technicality involved in this form of financing, it would be best to consult with a professional.
Getting involved with another firm both lowers the purchasing burden and adds additional skills, experience and talent to your new venture.
Although third-party financing companies will likely be interested in investing for equity in the company or they will require collateral, there are a lot of third-party financing options available.
When looking into business acquisition financing make sure you remember to consider the costs beyond the acquisition. Carefully outline and review your goals to make sure you have enough financing to cover the costs of operations.
For more information on business acquisition financing, contact Overhead Capital Ltd. today.
Managing cash flow for any business can be difficult, but owning a seasonal business often presents unique challenges. If you looking for ways to maintain a healthy cash flow within your seasonal business here are six quick tips to get you on your way.
First, figure out if your business is a seasonal one. If you own an ice cream chop in Chicago, IL it’s pretty obvious that your business is seasonal, but if you aren’t sure, track your sales over the past few years and take notes of any consistent drops in sales and business. Is it always around a certain time of the year or do sales drop when the weather is bad? Does your business rely on tourism?
Looking at your sales and operating costs from previous years, create a cash flow forecast—can be done with accounting software—and project your sales over the next 12 months. Create a budget that creates space for where operating costs are higher than sales. During your busy season save your surplus to accommodate the slow seasons.
A good and efficient invoicing season goes a long way. Invoice customers and clients immediately. Make sure they are accurate and that your payment terms are clear. Make making payments as easy and quick as possible by including a link in digital invoices where they can check out immediately and accept multiple forms of payment. When payments become overdue, reach out to resolve the balance immediately.
Effective invoicing allows you to take on more clients and customers during your peak seasons and keep you cost efficient during your slow season.
There are two approaches to generating more income: create new products and services or increase the value (and price) of the products and services that you already have. You can do both. During peak seasons you can tailor services to customers in order to create unique one-of-a-kind experiences and during slow seasons you can teach lessons or sell corresponding and complimentary merchandise. Increasing your business’ revenue will mean thinking of your business as a year long experience
It’s a good practice to go over your expenses quarterly, at the very least. Hidden costs and fees always find a way to creep into budgets interrupt cash flow. Delete subscriptions that you don’t need, find more efficient vendors and look for ways to save money any way you can. Consider closing temporarily during your slow season to save on operating costs.
Lastly, look into opening a business line of credit to assist with your cash flow. Similar to a credit card, a line of credit provides you with access to a certain amount of money that you can borrow from and repay over time. Lines of credit are incredibly flexible, allowing you to receive cash that is able to be used as your business requires.
Taking the time to acknowledge, budget and plan for the slow seasons in your business will help you grow a financially stable and successful business for years to come.
Unless you are abundantly wealthy it is almost certain that business funding will be a key necessity for your enterprise. It is important to know that the lack of capital and cash flow problems are among the key reasons for business failures.
Business funding can be needed for many reasons including purchasing equipment or other fixed assets, buying more inventory, securing a business opportunity, getting more talent for the business, improving or expanding your physical location, restructuring debt, or securing more working capital.
Securing business funding must match the needs of the business. Here are 10 ways to get the funding that you need:
The most common way is to get a traditional term loan from a bank or credit union.
The Small Business Administration (SBA) offers loans specifically tailored to the needs and conditions of small businesses, including favorable interest rates and terms of repayment.
Venture capital money can be provided to organizations that have a promising business future and manageable risk.
Angel investors are those groups or individuals who place their own funds into enterprises with promise.
Alternative lenders are specialists who provide funding such as accounts receivable financing, factoring, and merchant credit card financing.
Friends and family. This approach is often used but it comes with relationship risks.
This approach is a creation of the internet economy. It involves posting your business idea and plan on a forum to seek interested investors.
Incubators are organizations that want to find the next business breakthrough.
Applying for federal grants is a way to get funding for companies that are focused on research and development programs.
Bootstrapping is the means of pursuing every personal avenue to get business funding.
Contact Overhead Capital Ltd. based in Lebanon, OH, for financial solutions to address your startup and ongoing capital needs. Our experienced financial professionals can help you secure funding to meet your business’s financial needs and goals.