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Business Alternatives to Bank Loans

It takes a lot to run a business, and one thing that every business needs is ready access to working capital. Even for highly successful businesses, it can often be difficult to get the cash you need when you need it. Whether it’s for making payroll, expanding operations, purchasing new equipment, moving to a new facility, or any number of other operating expenses, most business owners turn to small business loans or other means of funding sooner or later in order to secure the cash in hand that they need to keep their business strong.

Unfortunately, especially in the wake of the recent recession, securing a loan from a big bank has become increasingly difficult. According to data from the Federal Reserve Bank of New York, 41% of small businesses surveyed applied for loans or other lines of credit. 37% of those were denied, while 36% received only a portion of the amount they were looking for. Of those businesses that didn’t apply for a loan, half of them said that they didn’t bother because they were discouraged about their prospects of getting a loan. In fact, in January of this year, big banks approved less than 1 in every 5 requests for small business loans that they received.

That’s the bad news. The good news is that small and mid-size businesses have increasing access to a variety of alternatives to bank loans, and alternative lenders are much less risk-averse than traditional banks. By comparison, alternative lenders approved around 64% of the requests they received in January.

While traditional banks typically approve only the most ”creditworthy“ businesses, alternative lenders often cater to ”subprime“ or ”midprime“ borrowers, businesses that may not have a lot of equity, may still be getting started, or may have had credit problems in the past. Businesses with just about any credit history can find alternatives to bank loans that will work for them.

The trick is in finding the right form of alternative financing for your business. The rise of alternative lenders means a sometimes dizzying array of choices, many of which carry some serious risks for the unwary entrepreneur. One common form of alternative lending is the merchant cash advance, which can be a great tool for many business owners—but utilizing this type of lending is a lot more common among business that primarily serve consumers and receive a lot of their income via credit card transactions.

For businesses that serve other businesses, the answer is receivables factoring. Receivables factoring isn’t a loan—which means that you can get cash in hand when you need it without increasing your debt. Instead, it’s an advance against your accounts receivable. A receivables factoring company purchases your current invoices, then advances you the cash you need within 1-2 days. When the client pays the invoice, the receivables factoring company pays you the eligible reserve, minus a small factoring fee. Receivables factoring can provide all the benefits of working capital when you need it, without the risks associated with loans and high interest rates.

This article brought to you by QC Capital Solutions, a leading provider of receivables factoring services to B2B companies. We help growing businesses find the cash flow they need to thrive and grow in a competitive marketplace. Ready to see what receivables factoring can do for your business today? Click here to get started!