When you need working capital for your business, what are your options? Today, small business owners have plenty of choices, and it can be overwhelming to figure out which one is best.
Before borrowing, understand your needs and ensure the numbers work for your business. How will you use the funds? Can you pay it back quickly? If your cash flow can’t handle the debt, borrowing may not be the best option. Remember, managing debt is crucial when raising extra working capital.
Fortunately, there are funding options easier to manage than traditional loans. To help you meet financial obligations, here are three options to consider:
**Alternative Lending** – Traditionally, small business owners go to banks or credit unions for loans and lines of credit. But if you don’t meet their strict criteria or need faster funding, alternative lending might be the answer. Alternative lenders offer a quicker and simpler borrowing process. Major differences between banks and alternative lenders include the application process, qualification requirements, and funding time. Alternative lenders have streamlined applications and approvals, making funding quicker, although they usually charge higher interest rates than banks or credit unions.
**Invoice Financing** – Do you have unpaid invoices? Late payments can create significant cash flow problems. Invoice financing allows you to free up the money tied in unpaid invoices, providing advances on them. Unlike invoice factoring, where payments are directed to a factor, with invoice financing, your clients continue to pay your business. This means you control the sales ledger, collections, and invoice processing.
**Revolving Line of Credit** – Unlike traditional business loans with fixed monthly payments and terms, a revolving line of credit is open indefinitely, allowing flexible access to funds up to a set limit. Various revolving credit products are available from banks, credit unions, and alternative lenders. Banks usually require personal and business tax returns, bank details, and financial statements for approval. Lender Match is a free online tool connecting small businesses with SBA-approved lenders for lines of credit. Alternative lenders use diverse data, including business revenue from checking accounts, for their review processes. Business credit cards are a great example, letting you pay off the balance in full or make minimum payments monthly. Before applying for a business credit card, review our success guidelines.
There’s no single best option for working capital, but these choices provide insight and guidance on what’s available. If you need quick access to working capital and don’t meet bank qualifications, consider these options as possible solutions.
