Business loans are massive financial commitments that weigh you down with high interest rates, repayment fees, and who knows what else. Despite this, they’re the first thing you turn to when you need an injection of money. Well, it’s time to change your tune. Here are three of the best alternatives to business loans when you need some additional cash.
Invoice Factoring – Great When You’ve Got Late Payments
The concept of invoice factoring is simple: you sell unpaid invoices to a company that will take them off your hands and pay a portion of the invoices straight into your bank account. They don’t pay the full amount upfront; they’ll wait for your customers to pay the invoices and then give you the remaining amount.
It’s a clever financial tool that removes the need for small business loans when you’ve got late payments interfering with cash flow. There’s a big chunk of money that’s yet to be paid, but you’re debating getting a loan to cover the monthly business expenses. Invoice factoring gives you the cash you need without having to deal with credit checks, interest rates, or repayment fees.
The only minor downside is that the company paying you for your invoices will take a cut from the total invoice amount as their payment. Realistically, that’s not enough to affect you, and it’s still a prime alternative to costly business loans.
Crowdfunding – Best For Businesses With Keen Communities
Some say that building your business around a sense of community is the key to success. If you manage to create a community around your business, then you’ve got a dedicated group of people who wish for you to succeed. You see this a lot with locally driven companies, and the community aspect paves the way for crowdfunding.
Crowdfunding trumps business loans in virtually every category:
- You can generate a lot of money
- You never have to pay the money back
- You don’t need credit checks
- You don’t deal with interest rates
- There’s no cost to getting the money
All you need is a community that’s willing to donate or invest in your business. You may have to hand out some perks – like lifetime discounts – but it’s well worth it. Crowdfunding is hard to do, but it’s pretty much the perfect way to fund new business ideas or expand your company without calling on a loan.
Angel Investors – Excellent For Large Cash Injections
Business loans are useful when you need large cash injections for sizeable projects. However, angel investors are also great for this, and they don’t ask you to repay them. An angel investor pumps your business with the cash it needs to grow and succeed, though this option comes with a significant downside.
The investor will likely want you to give up part of your company in the deal. They give you $100,000, but you have to hand over 25% of your business. Some owners don’t like this, while others realize it still might be better than getting a loan and dealing with business debt.
Are these three ideas completely 100% beneficial and without drawbacks? No, they each come with pros and cons, though most people will agree that they’re still a lot better than business loans.