Alternative Small Business Financing Options for SMBs

I’ve talked to you before about the ERC scams running rampant and how to steer clear of them, but there’s a recent update worth mentioning:

They’re also partially responsible for the IRS’s delay in issuing ERC refunds — especially for small businesses.

And funds like that could be exactly the kind of boost needed for struggling businesses.

Now, maybe the ERC credit isn’t for your Wilmington business (or you’ve already received it), and you’re still in need of a cash flow infusion. The banking crisis certainly isn’t making that easy for you. Which is why I want to talk about some alternatives to bank loans in today’s article. Before I do, though…

Besides getting capital, another strategy you might consider to boost your biz is working with large businesses. The U.S. Chamber of Commerce is hosting a little forum on June 22 to talk more about that. It seems big businesses see the value in working with and creating partnerships with small businesses like yours.

Take Apple. They’ve recently been working on Tap to Pay capabilities for secure payments for businesses (among other things). And they’re not the only ones making moves to help improve various aspects of business operations.

And though I’m no big business, I am here, looking out for you and your business’s future especially when it comes to tax obligations. If we haven’t talked yet about optimizing your tax situation for next year’s filing, let’s make some time. Reach out to me here:

Now, for a look at alternative small business financing options for your Wilmington business…

Alternative Small Business Financing Options for Wilmington SMBs
“Fortune befriends the bold.” – Emily Dickinson

Sure, banks come to mind first when your small business needs capital. But in these days of higher interest rates and tighter lending, it pays for you to know where else to turn for financing.

Because sometimes, banks are the best option. And sometimes, they aren’t.

Last time, we looked at the process for getting a bank loan. Today, let’s examine a few lenders for your business other than banks.

Alternative Small Business Financing Option 1: Small Business Administration

The U.S. SBA offers a ton of loan programs through lenders. One of them is the 7(a) Program for “businesses with special requirements.”

The SBA bills it as a good option when real estate is part of a business purchase, but it can also be used for short- and long-term working capital, refinancing debt, and purchasing of machinery, equipment, furniture, and supplies. The max amount for a 7(a) is 5 million dollars.

Eligibility is based on what your business does for income, credit history, and where you operate. Repayment is usually monthly, and generally these loans require a 10% down payment (potentially more for startups).

To apply, you’ll need an SBA form and much the same paperwork as for a bank business loan (though this can vary by lender): financial statements (including personal and projected), P&Ls, owners’ info, business licenses, loan application history, and tax returns — among other documents.

The SBA also has other biz financing, including its SBA Express Loan. Approval times can be faster depending on the lender. Repayment terms vary with loan and purpose. Interest depends on the lender but does max out at prime plus 6.5% for loans of 50,000 dollars or less, and prime plus 4.5% for loans greater than that. Express loans for more than 25,000 require collateral. Funding speeds also vary by lenders, but you often get your money within 90 days.

(If you’re interested, you can find SBA loan application info here and a lender-match tool here.)

Alternative Small Business Financing Option 2: Online lenders

Just like about everything else, business lending has blossomed on the internet. These lenders can give faster access to money for your business — sometimes in just days — but at (not surprisingly) higher rates and fees and lower maximums.

Often the lenders are financial tech companies rather than banks. Their eligibility requirements can be more flexible and the documentation requirements easier. No interviews will be in person (up to you if this is a plus or a minus). They’re also more likely to work with startups or businesses whose credit has been dinged.

Typical online financing options include:

Business term loans that get you a lump sum of cash. You repay with interest, over time — sometimes as little as a year. Good for major investments.
A business line of credit from which you can withdraw a set limit of money as needed, paying interest only on what you borrowed. Good for day-to-day and short-term needs.
Financing specifically for machinery or equipment. What you buy with the loan serves as collateral.
Invoice financing is a loan against your outstanding invoices, paid back with fees and interest when the customer pays you.
Merchant cash advances (not strictly a loan) also give you a lump sum of capital that you repay using a percentage of your future credit and debit card sales, plus a fee. This one is pretty expensive, so you should consider all other options first.

For businesses, rather than individuals, paying extra to get the fiscal fuel for initiatives may be worth the price. (Nerdwallet has a good interactive layout of various lenders where you can wash a few of your company’s specifics to see what you get.)

… Still more small business financing options

As much of a tool to build your company’s credit and streamline operations as they are a loan of cash, business credit cards are under the company’s name and used solely for business purposes. Approval often depends on your personal credit. We can help you sift through offers and watch for high interest and fees.
Crowdfunding draws in support of backers through online platforms. In return, they typically receive breaks on your products, equity in your company, or interest on what amounts to a loan to you. This has a reputation as an easy funding avenue, but it comes with a lot of conditions and catches — including time-consuming work, tricky taxes, and a high rate of failure for campaigns that depend on a target goal.
Venture capital is another famous avenue of biz funding. If you have a good idea and are willing to go through the hassle of issuing shares or divvying up your business, it can work well. Remember, though, that in many ways you’ll no longer be your own boss.

Each alternative small business financing option has its pros and cons, but the point is: You’ve got a lot more options for funding than just the bank.

If you are on the hunt for more funding for your business, we’d love to sift through the options with you and discover what would be the optimal fit. Don’t hesitate to reach out and let us know how we can help.