It's no secret that business owners want to borrow money as they grow. In fact, the majority of company startups are funded by loans.
But it’s not always an easy road - there are a lot of obstacles in your way with traditional banks, brokers, and lenders before you can even think about getting a loan.
And so we've compiled a list of 9 unorthodox ways businesses can borrow money and make their lives easier along the way.
In today's economy, companies need to be able to create opportunities and avoid stagnation. This can be achieved by borrowing money for a variety of business opportunities using these 8 unusual ways businesses can borrow money.
Companies don't always need to bring in investors and loans as long as they are aware of their spending habits. If you know what you need and how much you need, it can be a great benefit to your business.
These 9 ways will show you how companies can borrow funds without having to go through the hassle of bringing in investors or going through the long and complicated bank loan process.
1. Trade Credit
This is another way to take on debt without paying interest or principal back. One of the most popular ways a company can take on debt is through trade credit.
This means that instead of getting loans from your bank or other financial institutions, you simply buy the items or accessories you need from your suppliers.
Allowing a company to get their supplies without taking on debt can save them money because they are not paying interest and also saving their time and money in commission.
2. Peer-to-Peer Lending
This type of borrowing involves lending money to one another from individuals willing to give short-term loans to other individuals who need quick funding.
No collateral is associated with the loan, but it requires mutual trust and creditworthiness for the individuals involved even to consider taking on a loan.
The Lending Club, Prosper, and Second Market are examples of peer-to-peer companies that provide services for those needing to borrow money through a peer-to-peer network.
3. Merchant Cash Advance
If your business does a lot of volume in credit card transactions, you may be able to get an advance from an MCA lender – that is, a company that will give you an advance on your next month's credit card sales before they're even due. This way, you only need collateral from your business’s receivables, not its assets.
4. Invoice Factoring
Invoice factoring is similar to MCA; it's an advance on the money that your business is owed. The key difference, however, is that invoice factoring companies purchase your invoices (which means they become co-signers and have priority over other creditors). Other than this, they work pretty much the same way.
5. Asset Backed Lending
An asset-based lender will look to lend you money secured against items like real estate or equipment, rather than your business's future cash flow. In these cases, you'll be able to borrow against the value of the investment rather than just the returns it promises.
6. Term Loans
If your business has a steady income but doesn’t do much in the way of credit card sales, a term loan may be for you. These loans are repayable within a predetermined period, just like a mortgage, and can involve as little as one year or as many as 10.
7. Power of Attorney to Borrow Money
This is self-explanatory - to borrow money, your business needs a Power of Attorney (POA) allowing someone else (i.e., you) to act on its behalf.
8. Private Placement Bonds
A private placement bond is a loan that can be used by a business to obtain credit. Just like any other loan, a private placement bond is either secured or unsecured. If the former, the money is guaranteed by collateral, whereas if it’s unsecured, it’s secured only by your company's word and ability to repay.
9. Business Loans
Business loans are also available from banks that do not require collateral or personal guarantees. These loans are given from a bank in return for the income the business produces.
Banks generally have rigorous criteria for which businesses give time for borrowing terms of 3-month and 6-month terms with no interest accruing throughout the loan.
This type of loan has one significant advantage compared to other loans because you will only have an interest expense spread over 3 or 6 months instead of having all of it due at once.
10. Crowdfunding
When banks and other financial institutions were out of the question, many small company owners resorted to their networks for assistance. Crowdfunding platforms have made it simpler than ever to tap into your network.
Without a doubt, certain enterprises are more appropriate than others for this kind of social financing. To provide just one example, Kickstarter is a platform tailored specifically to the needs of artists and other creatives. Indiegogo's user base, on the other hand, consists mainly of IT companies looking to launch a new product.
Many of these platforms are "all or nothing," meaning that if you don't reach your goal, you won't get any of the money promised. However, success is more likely if you have a more extensive network and use innovative marketing strategies.
Conclusion
Businesses borrow money for various
reasons, but the most common reason is to finance growth. By understanding how businesses borrow money and the different types of loans available, you can make more informed decisions about your business financing.
