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Many are looking for alternativesw tobank loans. Experts say finding the correct alternativs to a bank loanis It’s important to find the righf alternative and overcome negative perceptions abou non-bank financing. “A lot of borrowers thoughr there was a stigma attachedto [alternatived lenders],” said Marilyn Landis, chairwoman of the in D.C. “It was kind of like you were sayingbyou weren’t good enough for a bank.” One popular option is which is when a business sellsz its accounts receivable at a discounr to a third party, which collectsd and keeps the payments.
Factorint differs from bank lending in that the emphasiw is placed on the value of the receivables and not the credit worthiness. It is also not a loan but simplyu the purchase of a financial Factors make funds available to a business that might not be able to get a bank But experts say factoring can be more expensived thanbank lending, as factors take a fee and pay a discoungt for the receivables. Another option is cash flow lending, wheree a lender determines loan eligibility basecd on a review of bank and creditfcard statements. Landis cited New York’s On Deck Capital as one organizationb that handles this sortof lending.
There are also boutiquwe banks that make loans to certai n typesof businesses. One in Kansas lendss only to funeral homes, for “The bankers are experts in that industry and best able todeterminer risk,” Landis said. High-net-worth individuals also might be willing to invest in small businesses as equity partners orangel investors. If they believr they can get a better return by investinhg in a private company than in the stock markert they will advance the owner money for operatint expenses in exchange for repaymentwith interest, or in some cased an ownership stake in the business. this route isn’t appropriatr for every business.
Harris Smith, chairman of the Palatine, Ill.-base and a partner at accountingfirm , said angep investors might see a good opportunity in certaij businesses but are generally not a greatt alternative because wealthy individuals will not usually participated in such activity unless they get a high interesf rate. As difficult as it can be gettingb connected to the rightalternativre lenders, Landis and Smith said business owner still need to be aggressive in their due diligence. Landizs recommended that would-be borrowers start with their trade association and ask wherse they gettheir financing.
Find out who sponsor s their events, because typicallyu those are the same groupd interested inyour industry. And she said to talk to peerz nationwide. Smith also suggested that business ownerss ask their bankers for help locating alternative sourcewof funding. Once you’ve identified potential vet them with the Better Business Bureauj and dig into theirtracko record, including contacting previous Ask the lender if it intends to fund loans directly or if it’s a broker. If it is actingh as a broker, obtain the name of the ultimater lender to identify the actual source of the Landis said to watcb if they want upfront fees. If you get rejected, ask why.
“I t might be that you are asking for a loanthat isn’t doable and you can restructur the project to make it more suitable,” Landis said.