Since the financial crisis of 2008, small and mid-sized enterprises (SME) have struggled to find funding options. Overtime, banks have continuously reduced their lending. In fact, according to a study by Harvard University, SME lending by large U.S. banks has decreased by approximately 20 percent since the financial crisis. This, coupled with the fact that regulatory pressure is imposed on banks to reduce their balance sheet, has held SME lending back from making a rebound.
Consider the following five ways your business can take advantage of alternative funding options:
SME loans
Traditionally, when working with a bank, your business’ creditworthiness is analyzed by using a credit scoring model. If your business fits into their loan portfolio, you are then offered a loan agreement. The terms and interest rate of that loan are tied to your creditworthiness. However, as SME lending from traditional banks has been reduced, the number of denials for SME loans has increased.
There are now many alternative SME lending companies – Kabbage, FAM, Credibly, etc. – that offer loans specifically for SMEs. The advantage is that your creditworthiness is not solely determined by a credit scoring model. Instead, data like monthly revenues and profit margins (real-time business data) are used to determine whether or not you receive a loan.
Equity crowdfunding
Equity crowdfunding is for the individual that prefers cash via equity. Raising capital through an equity crowdfunding platform is done through collecting contributions from a large number of individual private investors. In return, those investors become a shareholder in your business. If you’re seeking safe, online equity crowdfunding platforms, some reputable U.S. based examples include: Crowdfunder, OneVest and FoundersClub.
Invoice factoring
Invoice factoring involves selling your business’ invoices to a third party at a discount. You then receive immediate cash flow for your business’ needs. This is an ideal option if your business experiences cash flow shortfalls that are a result of invoices not being paid on time. In the past, this type of debtor finance was only available to large multi-national corporations. Thanks to alternative lenders this service is now available to SMEs in the U.S.
Merchant cash advances
A merchant cash advance provides your business with a lump sum payment in exchange for a pre-determined fixed percentage of your daily debit and credit card sales. The advantage of using a merchant cash advance is that your business pays back less during slow months and more during months when your business is thriving. A merchant cash advance typically works well for the business struggling with bad credit issues, little to no business history and no collateral.
Credit card processing loans
For the business that fails to receive merchant accounts with traditional financing sources, it is impossible to obtain secure credit card processing solutions. A credit card processing loan with an alternative provider – like First American Merchant – allows your business to process these transactions, whether your business is retail, online sales, commercial/industrial supply or direct marketing. The advantage of these services is that, the software can be up and running quickly, and you have a team of support waiting for any processing questions or needs.
To learn more about the business funding options and credit card processing loans offered by our expert team here at First American Merchant, contact us today!