Small businesses often need quick cash infusions. Expenses may run high. A slow season can make paying bills difficult. A great expansion opportunity may require cash now. Business owners can meet these challenges with a merchant capital advance. This simple business loan alternative is based on your business, not your credit. Unlike bank loans, merchant capital advances allow you to fully control your business. Before taking out a business loan, get to know these key lending terms:
Alternative Financing Services
These services are alternatives to bank loans. Whereas bank loans require collateral, alternative financing services often do not. For example, a merchant cash advance requires no collateral. It is an advance based on the company’s history.
Also known as net working capital, this is a business’ assets divided by its liabilities. If the answer to this equation is less than one, the business has negative working capital. Negative working capital means that the business has too few assets to meet current liabilities.
Non-sufficient Funds (NSF)
An NSF means funds in a checking account are insufficient to meet debits. Banks often charge large fees for NSFs.
This refers to payment type, such as cash, check credit card, or debit card.
ACH payments are prescheduled, automatic payments that are debited from a checking account. In other words, a common remittance type for alternative business funders.
Line of Credit
Every business owner needs at least one line of credit. Unlike loans, lines of credit do not require your business to pay interest on money borrowed. Instead, it’s available when you need it. You can borrow against it when necessary, and pay it back at any time.
Fans of Shark Tank know this one. Equity financing is when a business owner exchanges a portion of their equity share for a loan. It doesn’t have to be paid back, but the financier owns a portion of the business and claims his or her portion of the profits. This is not always a favorable option for a business owner which is why so many seek a merchant cash advance instead.
In terms of cash flow, refinancing can be crucial. Just like a home refinance, it involves paying off an existing loan with a new one. By refinancing into a loan with lower payments, a business owner can increase cash flow. Lower payments can result from taking out a longer-term loan or a loan with a lower interest rate.
Bank loans often require small businesses to stake collateral, which is property to the bank can repossess if a loan defaults. This can include assets of the business and even the business owner’s personal property. Business loan alternatives often have no collateral requirements.
For most small businesses, cash flow is the critical factor. Positive cash flow results from making more money than expenses. When cash flow goes negative, businesses must react swiftly to increase income or reduce expenses.
For more information on a business loan alternative, visit Alpine Funding Partners.